The new market playbook: Five lessons for commercial real estate

Markets have a way of making certainty feel especially valuable just when it becomes hardest to find.

That was one of my biggest takeaways from Willy Walker’s recent Walker Webcast conversation with Liz Ann Sonders, Chief Investment Strategist at Charles Schwab. Their discussion ranged from inflation and interest rates to housing, artificial intelligence (AI), consumer behavior, and the changing structure of financial markets.

Underneath all those topics was a larger idea: The environment investors grew accustomed to over the past several decades may no longer be the one we operate in today.

For those of us in commercial real estate, that matters. Our industry makes long-duration decisions in a world where capital markets can move quickly. We have to assess what is happening today while underwriting what could happen years from now.

Here are five lessons from the conversation that stayed with me.

1. Start with the picture on the box

Liz Ann opened with an analogy I loved.

When you build a jigsaw puzzle, the most important thing is not a corner piece or even the final piece. It is the picture on the box. Without knowing what you are trying to build, assembling the individual pieces becomes much harder.

For investors, that picture is the plan. That idea translates well to commercial real estate. Interest rates move, valuations reset, capital comes in and out of the market, and certain property types fall in and out of favor. If every new data point makes us reconsider the entire strategy, we risk letting short-term volatility drive long-term decisions.

The answer is to understand shifts within the context of the larger picture. What are we trying to accomplish with this asset or portfolio? What is the time horizon? Where are the risks? How much flexibility does the capital structure provide? What assumptions have to hold true for the investment thesis to work?

The clearer those answers are, the easier it becomes to distinguish a meaningful change from market noise.

2. Prepare for a more temperamental market

One of the most interesting parts of the conversation was Liz Ann’s description of what she calls the end of the “Great Moderation.”

For much of the period beginning in the mid-1990s, investors operated against a backdrop of relatively low inflation volatility, longer economic cycles, globalization, and generally declining interest rates. Liz Ann contrasted that period with what she calls a more “temperamental” era characterized by greater inflation volatility, more uncertainty around monetary policy, and potentially shorter cycles.

She does not expect history to repeat itself exactly. Technology, information, and market structures have changed. But she also does not expect a simple return to the environment investors became accustomed to before the pandemic.

Commercial real estate leaders should be cautious about building strategies that require yesterday’s market conditions to return.

That principle holds true, particularly regarding interest rates. Liz Ann’s view was that, absent a significant economic dislocation or major retreat in inflation, the path of least resistance for rates may remain higher. She also emphasized that the speed of rate movements can matter as much as the absolute level.

Flexibility has value. Financing decisions, exit assumptions, and business plans need to account for a wider range of potential outcomes.

Experienced advisors who can help clients evaluate different sources of capital and structures as conditions change are essential. In a predictable market, the obvious answer may work. In a temperamental one, having more options matters.

3. Watch the direction, not just the destination

Liz Ann offered another deceptively simple framework: “Better or worse” can matter more than “good or bad.”

Markets are forward-looking. Investors often focus on whether a data point looks strong or weak in absolute terms, but markets may care more about whether conditions are improving or deteriorating.

Consider fundamentals. A market can still have elevated vacancy, but if leasing activity is accelerating, new supply is falling, and absorption is improving, the direction may be more informative than the headline vacancy number alone.

The reverse can also be true. Current conditions can look healthy while leading indicators begin moving in the wrong direction.

I believe inflection points deserve so much attention right now. Instead of asking only, “Are fundamentals good?” we should also ask:

• Are they getting better?
• Is the supply pipeline expanding or contracting?
• Is capital becoming more or less available?
• Are financing costs stabilizing or becoming more volatile?
• Is investor conviction strengthening or weakening?

In uncertain markets, understanding the direction of travel can create an advantage before the headline numbers tell the full story.

4. Housing is about more than interest rates

The housing discussion was particularly relevant to our business.

Housing affordability remains constrained by home prices, mortgage rates, and household income. At the same time, many existing homeowners remain effectively locked into mortgages originated when rates were substantially lower, limiting existing-home supply.

But Liz Ann raised another easy-to-overlook factor: behavior.

Younger generations may approach homeownership differently. Marriage and family formation patterns are changing. For some households, flexibility and experiences may carry more weight than owning physical assets. These changes cannot be explained solely by mortgage rates or home prices.

The relationship between renting and owning may be shifting over the long term, but multifamily still carries risk. As Willy and Liz Ann discussed, multifamily markets can still become overbuilt, and supply and demand remain highly local.

For owners, developers, and investors, the lesson is to resist treating housing demand as a single national story. Demographics, migration, employment, household formation, affordability, and new supply interact differently from market to market.

5. AI is moving from creation to consequence

Liz Ann framed the evolution of AI in three stages: creation, catalyzation, and cascading.

The creation phase introduced the technology and large language models. The catalyzing phase brought the enormous infrastructure buildout required to support it, including data centers, energy and power infrastructure, and related capital investment. The cascading phase is what happens as AI spreads across the broader economy.

We are beginning to see that cascade. For commercial real estate, the implications extend well beyond data centers. AI infrastructure can influence energy demand, industrial activity, development patterns, employment, and capital allocation. At the same time, AI adoption could change how companies operate and ultimately how they use real estate.

The challenge is that the winners will not necessarily be obvious. Liz Ann described a market increasingly characterized by rotation rather than a single cluster of companies driving performance. I think there is a useful parallel for commercial real estate. The AI opportunity may not simply be about identifying one “AI property type.” It may be about understanding the second- and third-order effects as investment and economic activity move through different industries and markets.

It requires curiosity, discipline, and a willingness to look beyond the most obvious narrative.

A playbook built for change

Near the end of the conversation, Liz Ann drew a distinction between investing and gambling: “Investing is about owning. Gambling is about hoping.”

That may be the lesson that ties everything else together. Periods of uncertainty can tempt us to make predictions. Where will the 10-year Treasury be a year from now? When will transaction volumes return? Which markets will outperform? What will AI change next?

Those are reasonable questions. But durable strategies cannot depend entirely on getting every prediction right.

They depend on understanding the asset, the market, the capital structure, and the risks. They depend on recognizing when conditions are changing and on having enough flexibility to act when opportunity emerges.

At Walker & Dunlop, we spend every day talking with owners, developers, and investors who are navigating these questions in real time. What strikes me about this market is not that opportunities have disappeared. It is that finding and executing on them requires looking at more pieces of the puzzle at once.

The picture on the box still matters, but in this market, so does being prepared for the pieces to move.

To enjoy the full discussion with Liz Ann, watch the webcast.