Commercial real estate capital is reassessing risk and return as higher interest rates and shifting fundamentals reshape valuations, according to participants on the Oct. 21 Walker Webcast, “CRE Market Outlook: Risks & Opportunities.” Walker & Dunlop chairman and CEO Willy Walker hosted the discussion with Ivy Zelman of Zelman, a Walker & Dunlop company, and Walker & Dunlop capital markets executives Kris Mikkelsen and Aaron Appel.
The panelists noted that a sector long supported by abundant, low-cost debt now has to recalibrate around the true cost of capital and more modest equity return expectations. Mikkelsen argued that real estate was never intended to consistently generate venture-style returns, and that today’s adjustment reflects the end of a period defined by near-zero interest rates and double-digit equity yields.
Appel said lender credit spreads have not widened dramatically even as Treasury yields have risen, but benchmark rates above 5% are directly influencing the valuations buyers and lenders are willing to underwrite. He added that several transactions expected to close shortly before the webcast had been delayed as lenders took a more changeable stance on issues that previously would have been easily resolved.
Despite these frictions, the panel reported that many multifamily transactions are still closing at previously agreed pricing. Mikkelsen said that out of 120 transactions awarded since May, roughly two-thirds have closed or are proceeding without price changes, while the remainder are splitting between repricing and falling out of contract.
The group questioned commonly cited figures for commercial real estate dry powder, with Mikkelsen suggesting that the amount of deployable capital is likely smaller than headline numbers imply. He characterized the current fundraising environment as highly competitive, with managers fighting hard to raise new funds, and said the key challenge is reconciling asset values with today’s cost of capital rather than a complete lack of liquidity.
Zelman described for-sale housing as weakening, with softer existing-home activity, rising inventories and limited room for further mortgage-rate buydowns. In contrast, she pointed to rental housing as relatively better positioned, expecting that demographic strength in renter household growth will help absorb new supply, even as conditions vary across markets and product types.
The webcast also highlighted mounting questions around the data center and artificial intelligence buildout. Appel said data center financing remains somewhat insulated from broader CRE trends, with credit spreads for hyperscale tenants such as major cloud providers staying stable, while spreads for smaller, non-rated operators are widening. Zelman framed bubble concerns around high costs and negative cash flow rather than the underlying compute demand, noting that funding is being driven more by leverage than by current cash generation.
Appel pushed back on the idea of an imminent AI or data center bubble, saying much of the skepticism comes from older market participants, even as he acknowledged that a severe reversal in the data center sector could have broader macroeconomic repercussions given the scale of capital being deployed.
Looking ahead to 2027, Appel anticipated lower interest rates and cap rates, with potential deflationary effects from AI, while Zelman favored rental housing over for-sale as a more attractive long-term bet within the housing ecosystem. Mikkelsen emphasized that ongoing repricing will be painful but ultimately represents a return to fundamentals, encouraging investors with solid capitalization to be patient and allow time and compounding to work in their favor.
