When the long-term opportunity meets a short-term clock

Commercial real estate has spent the past several years waiting for inflation to ease, rates to fall, transaction activity to return, and the construction slowdown to work through the market.

Listening to Willy Walker’s latest Walker Webcast conversation with Dr. Peter Linneman, I kept coming back to a different question: How long can owners and investors afford to wait?

Peter views real estate over an eight- to 12-year investment horizon and cautions against judging an investment based on a difficult two- or four-year stretch. Willy raised the complication. Individual assets have their own clocks. A refinancing may be due in 2026 or 2027. An investor may need to recycle capital. An existing capital structure may simply run out of runway.

Parts of commercial real estate are beginning to offer a more compelling long-term setup. The challenge is getting there.

The rate call is really a call on time

Peter believes today’s long-term rates have moved beyond what underlying economic conditions justify. Higher oil prices have pushed inflation upward, but if oil stabilizes, the year-over-year inflationary effect eventually fades. A decline in oil prices could accelerate the process.

He has less confidence in how quickly the Fed would respond. For an owner facing a near-term refinancing, Peter would consider shorter-term financing rather than lock in long-term financing at current rates, even though he generally favors longer-term debt.

The tradeoff is straightforward. Waiting preserves the opportunity to benefit from lower rates but leaves the owner exposed if they remain elevated. Locking in removes that uncertainty at today’s cost.

Multifamily improvement may appear before rent growth does

Peter has been expecting the sharp decline in multifamily starts to eventually produce stronger rent performance. Willy challenged the timing. With 2026 nearing its end, dramatic rent growth has yet to materialize.

The early improvement may instead be showing up in concessions. As newly delivered properties lease up, renters have fewer units to choose from, and owners have less reason to offer aggressive incentives. Peter cited properties where concessions had fallen from two months to zero without an increase in face rents. The improvement still flows through to net operating income.

Financing remains the harder part of the equation. Higher rates can reduce loan proceeds, requiring more equity when equity is already scarce. Those same conditions are making new development harder to pencil, further limiting future supply.

Willy also highlighted the scale of the refinancing ahead. $1 trillion of agency and non-agency multifamily debt is scheduled to mature over the next four years. How those existing loans perform and where refinancing capital comes from will help shape the market's next stage.

Office has become investable, not indiscriminate

Peter’s bullish call on office from early 2025 has proved prescient in some markets. Willy pointed to the performance of office investments in New York and San Francisco over the past 18 months.

Geography and asset quality remain decisive. Two years ago, investors could identify a good office opportunity and still struggle to find debt or equity. Capital is available today for the right assets, although performance continues to vary sharply among cities and submarkets.

Office is no longer simply a distress story. Capital is returning, new supply is exceptionally limited, and some markets are showing real strength. Selectivity remains essential.

Data centers raise a different supply question

Data centers present almost the opposite setup.

Current demand is not Peter’s concern. The amount of capital chasing it is. Hyperscalers are accepting unusually attractive economics to secure capacity, lenders are providing high leverage, and equity is following. Peter sees the potential for all of that capital to eventually produce too much supply.

He does not expect the problem to surface immediately. Capital already committed should support development over the next several years. His greater concern is the influx of inexperienced developers attracted by available financing and projected returns.

Data centers require more than capital. Power availability, development complexity, and execution can quickly separate experienced operators from newcomers.

Capital structure may decide who gets to wait

Willy ended with a hypothetical: If Peter had $100 million of equity to invest in commercial real estate today, where would he put it?

Peter chose apartments in growth markets where construction has slowed dramatically, naming Austin, Nashville, and Charlotte as examples. But he would not underwrite a rent spike on a particular schedule. He would give the investment four or five years to play out.

His answer gets to the market's central tension today. The supply outlook may be improving for multifamily even as some owners face difficult refinancings. Office opportunities are emerging, but only for the right assets and markets. Strong data center demand is attracting the capital that could eventually create excess supply.

Getting it right on where the market is headed is only part of the equation. Investors also need enough time to get there.

For the full context of their conversation, watch the Walker Webcast episode today.