2025 has started with plenty of market noise, which often sends investors searching for steadier income and real-world utility.

Residential commercial real estate—think apartments and professionally managed rental communities—keeps showing up on that shortlist. In a recent discussion, Fundrise CEO Ben Miller outlined why this corner of real estate can look unusually compelling this year.

2025 Setup

Residential commercial real estate sits in an odd spot: borrowing costs remain elevated, yet many property prices have already adjusted downward. That combination can improve forward return potential because buyers may be paying less for the same rent-producing buildings. The focus shifts from quick appreciation to durable cash flow, smart financing, and patient holding periods. As - Ben Miller, Fundrise CEO notes, "The real estate industry, because they don't have much allocation authority, overemphasizes the importance of individual deals. That deal matters—you have to be compulsive about execution— but the alpha is mostly in being in the right trend."

The appeal is also psychological. Public markets can reprice in minutes, while property performance tends to move with leases, renewals, and local supply. That slower rhythm doesn’t remove risk, but it can reduce whiplash. For investors who want income backed by housing demand, the category becomes easier to take seriously in 2025.

Valuation Gap

One bullish argument starts with relative pricing. Large-cap stocks have traded around 22x forward earnings, well above a long-term norm near 17x. When equity valuations stretch, future returns often rely on continued optimism. Meanwhile, many commercial residential properties have seen meaningful markdowns since 2022, creating a noticeable valuation gap.

A price decline of 20%+ in apartments and similar assets changes the math. Cap rates can rise as prices fall, meaning each dollar invested may buy more net operating income than it did a few years ago. If financing rates eventually ease, that gap between property yields and funding costs can improve, supporting stronger total returns.

Reset Opportunity

Another way to view the gap is replacement cost. Building new apartments is expensive: land, labor, materials, permitting, and financing all add up. When existing buildings trade below what it would cost to construct comparable supply, the market is effectively offering rental cash flow at a discount. That dynamic can create a floor under prices once forced selling fades.

This is also where diversified funds can help. Buying a single distressed building requires deep expertise and operational capacity. A pooled vehicle can spread risk across markets, property types, and managers. The tradeoff is less control, plus fees and limited liquidity, so selection still matters.

Correlation Break

Historically, stocks and real estate often rise together because both benefit from job growth, household formation, and overall economic momentum. From 2012 through 2022, the two categories generally moved in the same direction, even if the timing differed. Since 2022, the relationship has looked less aligned as equities surged while property values weakened.

When correlations break, a mean-reversion case appears. If the economy remains functional, real estate doesn’t need a boom to recover—just stabilization in rents, fewer distressed sales, and a return to normal transaction volumes. Even in a slower economy, housing can hold up better than cyclicals because people still need places to live.

Supply Squeeze

The third pillar is supply, and it’s straightforward: high rates tend to slow new construction. Financing a new apartment project becomes harder when debt is expensive and lenders demand more equity. Industry trackers have pointed to extreme slowdowns in some fast-growth metros, including reports of major drops in new starts in places like Houston.

This matters because real estate is local. A city with heavy deliveries in 2021 can feel oversupplied for a while, pressuring rents and concessions. But if new development pipelines get cut sharply for multiple years, the market can swing from too much supply to too little supply faster than expected—especially when household formation remains steady.

Inflation Path

The fourth reason centers on inflation and rates. Many investors worry that inflation could re-accelerate, keeping borrowing costs high for longer. The counterpoint is that weaker demand, productivity gains, and slower population growth can all lean disinflationary over time. If inflation stays contained, rate pressure can ease without requiring perfect economic conditions.

In that environment, commercial residential real estate can benefit twice: transaction activity returns as financing becomes more workable, and cap rates can compress as investors accept lower yields when safer yields fall. The market narrative shifts from “survive refinancing” to “optimize operations and grow income,” which is a healthier backdrop.

How to Invest

A practical approach in 2025 is to prioritize diversification, reasonable leverage, and transparent underwriting. Broad funds that own many properties can reduce the damage from any single weak market. Dollar-cost averaging can also help, especially when pricing remains uneven across regions and property vintages.

Due diligence still matters. Watch fee layers, redemption rules, debt maturity schedules, and expense assumptions like insurance and repairs. Favor assets with durable demand drivers such as job diversity, constrained building approvals, and steady renter household growth. Strong management can be the difference between “fine” and “fantastic” over a five-year window.

Conclusion

Residential commercial real estate can look attractive in 2025 for four main reasons: a wide valuation gap versus expensive equities, a historical relationship that appears out of sync, a building slowdown that may set up tighter future supply, and a rate that could improve if inflation stays contained. Which factor feels most persuasive—and what risk would need to fade before committing real money?