Capital where it counts: WDIP’s targeted strategy for a higher-rate era

As the era of ultra-low interest rates gives way to a more stubbornly elevated regime, real estate investors are recalibrating. For Walker & Dunlop Investment Partners (WDIP), the shift has revealed both risk and opportunity, particularly in parts of the market underserved by traditional capital.

"We’re not assuming rates will go down. That’s not part of our investment philosophy," said Brian Cornell, managing director and portfolio manager of equity. "We want to build into a high yield that can withstand higher interest rates for the foreseeable future."

Cornell believes the current landscape is fertile for selective capital deployment, provided managers can navigate dislocation, pricing inefficiencies, and the refinancing cliff looming over much of the market.

Three strategies, one philosophy

WDIP’s current investment approach is defined by a three-pronged strategy: opportunistic equity in the middle market, bridge lending, and preferred equity solutions.

Each, according to Cornell, reflects a tactical response to evolving macroeconomic conditions and a way of leveraging WDIP’s position within the broader Walker & Dunlop platform.

On the lending side, demand for transitional capital is surging, and WDIP is raising a large debt fund to meet what it sees as a once-in-a-cycle opportunity.

"The lion’s share of the debt that was originated three years ago in an essentially zero interest rate environment is coming due over the next two years," said Cornell. "Much of it can’t be refinanced on a fixed-rate or cash-neutral basis, and that’s created unprecedented demand for bridge lending."

Preferred equity has similarly gained relevance, filling gaps where borrowers are unwilling to sell at today’s marked-down valuations and unable to refinance at full proceeds.

"While the space is getting more competitive with new entrants, there’s significant runway and growing opportunity in preferred equity," he said.

WDIP is deploying capital from a dedicated separate account to meet this demand, often sourced through the firm’s in-house broker network and agency lending platform.

On the equity side, the team is targeting smaller, older-vintage assets, where dislocation is paving the way for value creation. Many of these opportunities are coming from sellers under pressure.

"The lower-middle market industrial space was populated predominantly by syndicators and country club/ private capital – this segment of investors has been slow to come back to the market, creating a great buying opportunity for our firm."

"As rates have risen, there’s been more of a willingness to sell at a large discount and not re-lease properties. We’re getting in at discounts to intrinsic value and executing institutional re-leasing plans."

Across these strategies, one theme unites the approach: resilience. "We want to ensure we’re not reliant on cap rate compression to make a deal work," he added.

Middle market edge

In a capital-constrained environment, WDIP believes the middle market offers a distinct edge. This comprises often fragmented, less-efficient corners of the market, and Cornell sees outsized return potential, especially in the industrial sector.

"Six of the first eight investments in our current fund have been in the industrial sector," he said.

This segment is less influenced by institutional capital, which has helped to reset valuations more rapidly.

"There’s been a dearth of institutional capital propping up pricing, so we’ve seen the largest valuation reset and the best yield and total return opportunities," said Cornell.

WDIP’s sourcing model plays a crucial role here. The firm screens deal flow from a national footprint of brokers and direct sponsors in addition to more than 200 internal W&D brokers, while relying on repeat relationships to build scale with trusted partners.

"Last year, we reviewed over $40bn in actionable deal flow and closed on about 1%," said Cornell.

The firm’s geographical reach is made possible by its partnership-driven model.

"We always work with local operating partners," he said. "That lets us be block-by-block in our underwriting – really micro-focused – but national in scale."

The industrial sector has led the way but Cornell anticipates a pivot ahead.

"We believe the next 12-18 months will offer the best window for distressed multifamily investing that we’ve seen in a long time,’ he said. ‘As owners run out of time waiting for lower rates, capitulation is beginning."

WDIP aims to fully deploy its current equity fund by the year-end and is already looking ahead to the shape of its next vehicle.

"We’re going to pivot our focus from industrial to multifamily to take advantage of the valuation reset,’ said Cornell. ‘With every fund and vehicle, we think carefully about the right place in the capital stack to invest."

Integrated advantage

A key differentiator for WDIP is its integration with the broader Walker & Dunlop platform.

"We have the resources of a large diversified real estate company," said Cornell, pointing to data from Walker & Dunlop’s $135bn servicing book, in-house research capabilities, and a deep broker network.

That institutional scale, combined with a stable and experienced team, underpins Cornell’s confidence in the strategy.

"My team is just as comfortable looking at deals from a preferred equity perspective as we are from a joint venture equity perspective," he said. "That ability to be nimble and craft the right structure at any given time gives me real confidence in our investment strategy."

"It’s a big reason why we’ve remained successful across multiple cycles. It helps us to manage downside risk and take advantage of the best risk-adjusted opportunities at any given time."

For more information, please get in touch with us at wdip@walkerdunlop.com.

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^{This presentation is for informational purposes only. Nothing herein is an offer or solicitation for the purchase or sale of any security and may not be relied upon in connection therewith. Investment advisory services offered through Walker & Dunlop Investment Partners, Inc. (WDIP). Private real estate investments involve risk of loss; past performance is not indicative of future results. WDIP investment strategies are available only to sophisticated accredited investors. AUM represents the outstanding total capitalization of all equity investments made and managed through WDIP funds, co-investments and joint ventures, plus senior debt originated and managed/serviced (both on an advisory and non-advisory basis) through WDIP joint ventures and separately managed accounts as of December 2024. Any opinions and forward-looking statements are that of the presenters are subject to change.}