Current real estate deliveries were financed in the 2020-22 low-rate era, causing a temporary supply glut in high-demand sectors like Sunbelt apartments. Since new construction halted in 2023, today's depressed prices offer a unique entry point before supply normalizes and rents can accelerate.

The cost to build a new home is soaring due to inflation and labor shortages. This "replacement cost" acts as a price floor for existing homes. This mirrors the 1970s, when home values tripled even as mortgage rates doubled, suggesting that long-term fixed-rate debt on property is a powerful inflation hedge.

A massive apartment construction boom is causing rents to fall in the West and Southeast ('construction states'). Meanwhile, regions with more building hurdles, like the Northeast and Midwest ('obstruction states'), lack this new supply, causing rents to rise, which dictates local negotiating power.

Unlike past cycles triggered by economic fundamentals like job losses, the recent CRE downturn was driven by capital markets (i.e., interest rate hikes). Because underlying property performance remained strong, lenders could confidently "extend and pretend," providing stability and preventing a catastrophic crash and broader economic contagion.

The extreme performance differences in CRE are not due to a single factor. They are the result of three major forces acting at once: cyclical supply hangovers in multifamily and industrial, structural shifts like hybrid work and e-commerce, and political changes influencing trade policy and supply chains.

While public discourse focuses on mortgage rates, Zillow's CEO asserts the core problem is a massive, long-term housing supply deficit. The US is underbuilt by nearly 5 million homes, a problem originating from the 2008 financial crisis that has been exacerbated, not caused, by recent rate hikes.

The US commercial real estate recovery isn't from a post-pandemic return to office. It's a supply-side correction: new construction has plummeted while old buildings are demolished or converted, causing total office space to shrink for the first time in 25 years.

While fears of a commercial property crisis peaked in early 2023, the worst-case scenarios failed to materialize. Key indicators are now showing a clear recovery, with transaction volumes, prices, and debt origination all rising. This suggests a disconnect between lingering negative sentiment and improving on-the-ground fundamentals.

Recent poor REIT performance isn't a sign of a broken model. It's the result of a classic capital cycle where cheap money in 2021 fueled a building boom, leading to a supply glut in 2023-24. With new construction now halted, the cycle is turning favorable.