Morning,

Last week’s newsletter laid out ten reasons why commercial real estate is entering one of the most attractive buying windows since 2009, driven by repricing, forced-sale dynamics, and the quiet re-opening of credit markets. Today, I expand on that thesis with a deeper look at four additional macro forces shaping the opportunity ahead.

Each of these forces, monetary, regulatory, fiscal, and relative-value, is meaningful on its own. Together, they form a convergence that real estate rarely experiences all at once.

And the research backs it up. Every argument below is grounded in current policy, institutional analysis, or market data.

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1. Interest Rates Are Coming Down, Whether the Fed Wants To or Not

The most powerful tailwind for real estate over the next 18–24 months is the simplest: financing costs are likely to fall.

The Federal Reserve began cutting rates in late 2025, lowering the benchmark to 3.75–4.00%, the lowest since 2022.

The internal dynamics are striking:

• Growth trends are slowing.
• Credit markets have stabilized.
• Inflation is steadying even if still stubbornly high.
• And the Fed faces unprecedented political pressure.

President Trump has publicly attacked Chairman Powell for not cutting aggressively enough and has floated the idea of firing him, an extraordinary breach of central-bank independence. He insists rates “shouldn’t be higher than 1.75%,” far below today’s levels.

Markets reacted sharply when political interference intensified:

• Treasury prices fell.
• Yields rose.
• The dollar weakened.

- all signaling shaken confidence in Fed independence.

Ironically, this may push the Fed toward faster easing to restore credibility.

This is the key takeaway for CRE:

The era of rate hikes is over; the era of rate normalization has begun.

Historically, real estate’s strongest vintages occur when rate cuts follow a pricing correction which is exactly the moment we are entering now.

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2. Banking Deregulation Is Unleashing Liquidity at a Scale Not Seen Since 2004–2006

If falling rates are the first pillar, financial deregulation is the second – and it is massive.

A sweeping deregulation agenda is underway, and according to Alvarez & Marsal:

• U.S. banks will see core capital requirements reduced by ~14%
• Translated this means the release of an estimated $2.6 trillion in lending capacity

This is not theoretical. It is structural.

A&M calls it “a direct boost to U.S. economic growth” which is a polite institutional way of saying that banks will lend more freely, more competitively, and on more generous terms than in the post-COVID tightening cycle.

The implications for real estate are profound:

• Bank balance sheets become reservoirs of liquidity rather than bottlenecks.
• Regional lenders can resume CRE lending after 18 months of withdrawal.
• Refinancing options expand for borrowers facing 2025–2027 maturities.
• Loan pricing becomes more competitive as capital constraints ease.
• New acquisitions pencil out as cost of capital drops.

Large institutions (e.g., JPMorgan’s potential $39 billion capital release) stand to benefit disproportionately, giving the U.S. a lender-strength advantage not matched abroad.

This alone increases transaction velocity but combined with falling rates, it marks the first real thaw in the debt markets since early 2022.

For sponsors with operational discipline and clean track records, this is the moment when financing swings back in their favor.

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3. The Most Pro-Real-Estate Tax Environment in a Generation

If monetary and banking policy set the macro backdrop, fiscal policy delivers the knockout punch.

The One Big Beautiful Bill Act (OBBB), signed July 4, 2025, is the most consequential real-estate tax package since the 1986 Tax Reform Act except, this time, the benefits run in the opposite direction.

Key provisions in the Bill:

a. Permanent 100% Bonus Depreciation

No phase-down. No sunset. Immediate write-off of qualifying assets and improvements.

For value-add investors, this front-loads tax deductions, accelerates cash flow, and materially boosts after-tax IRRs.

b. Opportunity Zones Made Permanent

Under OBBB, OZs no longer expire in 2026. State Governors will designate new zones on a rolling 10-year cycle beginning in 2027, making OZ investing a perpetual tax-advantaged strategy.

And the crown jewel remains intact: No capital gains tax on profits earned when holding an OZ investment for 10+ years.

That is extraordinary and now permanent.

c. Permanent 20% Pass-Through Deduction

The Section 199A deduction, originally set to expire, now stays in place indefinitely.

Section 199A is a federal tax provision that gives many real estate investors a 20 percent deduction on qualified pass-through income. It was originally created under the 2017 Tax Cuts and Jobs Act and was scheduled to expire in 2025.

In practical terms:

• It reduces taxable income from eligible real estate activities.
• It boosts after-tax cash flow for sponsors and LPs.
• It materially improves the after-tax IRR of operating and value-add real estate investments.

It is one of the most favorable tax treatments available to real estate operators and making it permanent locks in that benefit indefinitely.

d. Enhanced Housing and Community Development Credits

LIHTC (low income housing tax credits) and NMTC (new market tax credits) expansions further strengthen the economics of affordable and community-focused projects.

e. Niche but powerful: 25% interest exclusion for rural and agricultural real estate lending

This means that lenders who finance rural or agricultural real estate can exclude 25% of the interest they earn from federal income tax, creating a strong incentive to make more loans in those markets.

Individually, each of these incentives moves the needle.

Collectively, they define a tax environment engineered to push capital into commercial real estate.

This is the first time in decades that the U.S. government has used the tax code to explicitly increase real-estate returns to incentivize rather than constrain them.

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4. Buy low, sell high: A Rare Relative-Value Dislocation

Public equities, particularly large-cap tech, sit near historical highs. The S&P 500 has returned approximately 12 percent over the past twelve months, while tech valuations remain elevated with forward P/E multiples well above historical averages.

Meanwhile in US commercial real estate:

• Transaction volume in 2024 hit its lowest levels since 2011-2013, with Q3 2024 marking the lowest nine-month activity since the post-financial crisis period.
• Institutional allocators significantly pulled back, with transaction volumes down nearly 50% from peak levels.
• Market sentiment reached multi-year lows as higher interest rates froze activity.

That capitulation created a classic trough - and the trough is now turning:

• US CRE transaction activity surged 25% year-over-year in Q3 2025, with aggregate volume reaching $150.6 billion, signaling robust recovery.
• Median price per square foot rose 14.2% year-over-year across all property sectors in Q3 2025, reaching post-pandemic highs.
• Large deals ($10M+) returned in force, reaching the highest quarterly count since 2022.

The recovery signals are strengthening:

• 13 of 15 property subsectors showed quarterly price gains in Q3 2025, suggesting broad-based appreciation.
• Transaction counts through Q3 2025 outpaced both 2023 and 2024, confirming sustained momentum.
• Green Street's Commercial Property Price Index shows steady recovery with property values up nearly 3% year-over-year.

In short:

1. Stocks remain expensive after strong runs,
2. real estate is recovering from deeply discounted levels,
3. smart investors are selling (high) stocks to diversify and buy (low) into real estate.

This is exactly when long-horizon US investors move:

• Recognize early stages of CRE recovery after historic lows.
• Deploy into improving fundamentals with easing financing conditions.
• Capture both income and appreciation as the cycle normalizes.

And the US bid is deepening: pension plans, insurance companies, and major domestic - and foreign - allocators have all signaled increased commitments to private real estate in 2026 as valuations reset and credit markets reopen.

They’re not buying real estate just because it feels safe.

They’re buying because it’s cheap.

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Closing Thought

The forces shaping this moment are not incremental - they are structural. A synchronized combination of falling rates, expanding bank liquidity, aggressive fiscal incentives, and a rare valuation gap between stocks and real estate does not appear often, and when it does, it rarely lasts long. Cycles do not wait for consensus. They turn when the underlying mechanics shift, well before sentiment adjusts or headlines catch up. That shift has already begun.

The question for disciplined operators is not whether conditions are perfect. They never are. The question is whether the foundational elements that drive forward returns are now in place - lower pricing, improving financing conditions, renewed lender capacity, and a tax environment built to reward new investment - and they are.

In periods like this, advantage flows to those who move early, with clarity and conviction, while others remain anchored to yesterday’s fears. The next few years will not reward indiscriminate buying, but they will reward those who understand that the inflection point is already behind us - and who are prepared to act while the window is still open.

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If you're gearing up to raise capital as conditions shift and you want to do it with the discretion and rigor investors now demand, I partner with a small group of sponsors to design, run, and help manage their full equity capital-formation systems.

Contact me if you'd like to discuss.

Adam

This week's Podcast/YouTube show

Guest: Jeff Brown, Founder and CIO, T2 Capital Management

A Post-Crisis Firm Built for Today’s Market

Jeff Brown founded T2 Capital Management in 2011 “on the heels of the great financial crisis,” when capital was scarce and many firms were fighting for survival.

What began out of necessity has grown into a private equity real estate platform managing about $1 billion for roughly 2,000 investors, with offices in suburban Chicago and Nashville.

The through-line in Brown’s story is discipline: in choosing niches, in managing risk, and in communicating candidly with investors. For CRE professionals navigating today’s mix of fatigued LPs, constrained liquidity, and emerging opportunity, T2’s model offers a useful template.

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Three Verticals, One Philosophy

T2 focuses on three verticals:

• Private credit (bridge lending)
• Student housing
• B and C class multifamily in the Midwest and Southeast

The firm began in bridge lending, Brown’s core competency, and added operating verticals gradually. The philosophy was shaped early: be “experts in a given niche within the commercial real estate space, as opposed to trying to be all things to all people.”

That expert-first positioning has only grown more important in a market where, as Brown notes, “there are more private equity firms in the United States than there are McDonald’s.”

Investors overwhelmed by choice increasingly prefer specialist managers with visible depth.

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Competing with Tourists

Bridge lending is now a crowded part of the market. New entrants, “tourists,” as Brown calls them, have been drawn by the appeal of low double-digit returns on senior secured loans.

Their eagerness shows up first in price: they “want to make a splash,” Brown notes, so they undercut experienced lenders.Borrowers sometimes chase the cheapest quote, only to return as “boomerang opportunities” when lower-cost lenders can’t close or change terms late in the process.

For sponsors, the message is simple. Certainty of execution often matters more than the last fraction of a percent. And for lenders, competing on price alone can push you into parts of the risk curve better left alone, particularly construction, entitlement, and complex repositionings.

Brown puts it plainly: “Construction is hard. Entitlement is hard. Development is really hard.” T2 keeps discipline by staying within its strike zone, $3–$30 million loans, with a core around $10–$15 million, and by focusing on transparency, repeat borrowers, and two- to three-year structures that function as true bridges.

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Workforce Multifamily: Tailwinds Meets Oversupply

Brown is equally clear-eyed about multifamily. Structurally, the demand story is compelling. He cites data that “the average age of the first-time home buyer in the United States just eclipsed 40 years old.”

Homeownership has become “untenable” for many younger households. At the same time, elevated rates and construction inflation have constrained new supply.

This combination, stressed affordability on the for-sale side and limited new multifamily development, is a strong tailwind for existing B and C stock. It supports occupancy and gives operators room to “maybe even raise rents a little bit” without pushing into luxury positioning.

But cyclical headwinds remain.

Near-zero rates in 2020–2021 triggered a wave of new development in markets like Huntsville and Nashville. Those units are now being delivered, creating localized oversupply and forcing concessions.

The takeaway for owners is straightforward: underwriting must be market-specific. National narratives about a housing shortage don’t erase the reality of submarket-level supply gluts. Brown expects supply to tighten meaningfully once this wave leases up but surviving the interim requires patience and realistic assumptions.

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Student Housing: University Strength Is Now a Core Credit Variable

Student housing shows a similar bifurcation. Some universities, especially STEM-heavy flagships with strong cultures and sports brands, are “flooded with applications” and can be “uber selective.” Others are struggling to maintain enrollment without steep discounting.

For investors, this raises a structural risk point: credit risk increasingly sits with the long-term viability of the university itself. Brown stresses the importance of being “very mindful of the evolution of colleges and universities around the country for who’s going to make it long term.”

Demand durability now begins with the strength of the institution, not just the market.

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The RIA Channel: Trust, Reporting, and Real Results

Perhaps the most distinctive aspect of T2 is its capital base. The “vast majority” of its capital comes from registered investment advisers, a channel most sponsors talk about but struggle to penetrate. Brown is clear: “It’s not an easy road.”

Two factors made it work.

First, RIAs “learn to trust us” through responsiveness and consistent, transparent reporting, audits, quarterly statements, and proactive updates when something material occurs.

Second, T2 has delivered results long enough that advisors can recommend the firm with confidence. Operationally, this requires an institutional backbone. T2 funds are on major custodial platforms, Schwab, Fidelity, Pershing, allowing RIAs to maintain custody, charge their advisory fees, and see performance on client statements.

For sponsors hoping to access wealth-management capital, the message is blunt: there are no shortcuts. Infrastructure, reporting, and compliance matter as much as returns.

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401(k)s, Liquidity, and Retail Expectations

Brown is measured about regulatory efforts to open retirement plans to private assets. The 401(k) universe is enormous, but he warns that investors accustomed to daily liquidity may not appreciate the nature of private markets. Real estate, venture capital, and buyouts “don’t trade instantaneously. They don’t trade every day.”

Achieving “desired liquidity” that preserves value takes time. For CRE sponsors, the implication is clear: true retail access will remain intermediated and education-heavy. The idea of tapping local 401(k) accounts directly is not realistic.

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Scarred Investors and the 2026 Opportunity

Across T2’s investor base, Brown sees two dominant trends: a preference for specialist managers and a shortage of liquidity among LPs whose other bets have gone poorly. He cites a family office for whom T2 is “their only real estate fund that has made money for them for the past couple of years.”

T2’s response is pragmatic: accept smaller commitments, cultivate new relationships, and adjust fund-size ambitions. With a granular investor base and a $100,000 minimum, the firm can flex up or down more easily than managers relying on a few large checks.

Looking toward 2026, Brown shares the optimism of many experienced operators. A more real estate–friendly administration, a bias toward lower rates, and deregulation that could unlock lending capacity all point toward improving conditions.

But his operating stance remains cautious: stay niche, stay transparent, and assume liquidity will take time to return. The broader lesson for CRE professionals is simple: build platforms resilient enough to withstand lean years, with specialization and trust as their backbone. Those who do will be positioned to move when the next window opens.
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