In today’s real estate market, DPI is telling the story

Commercial real estate investors have spent the last several years navigating a market defined by higher interest rates, reduced transaction volume, and persistent valuation uncertainty. But beneath those headline challenges, another issue has emerged with growing significance: liquidity.¹‍

For limited partners (LPs), one metric is increasingly standing out as a key indicator of how fund managers are navigating the current environment: distributions to paid-in capital, or DPI. At its core, DPI measures how much capital investors have actually received back relative to what they committed. In a market where many managers have delayed sales and extended hold periods, realized liquidity is becoming a defining differentiator.

Recent market data underscores the scale of the challenge. Across more than 200 real estate funds representing approximately $200 billion in invested capital, the median DPI for 2019–2021-vintage funds is just 15 percent. For many LPs, that means the majority of their capital remains tied up years after deployment.²‍

The implications extend well beyond individual fund performance. Liquidity constraints are influencing investment sales activity, refinancing trends, portfolio strategy, and future capital allocations across the commercial real estate landscape.

Why liquidity has become constrained

The current market environment has created strong incentives for owners and fund managers to avoid selling assets. With property values under pressure and financing costs elevated, many sponsors have opted to refinance assets or extend hold periods rather than transact at discounted pricing.

That dynamic has contributed to muted investment sales activity while simultaneously supporting elevated financing volumes. In many cases, bridge financing and short-term refinancing solutions have become tools for preserving optionality until market conditions improve.

However, deferring exits is not a permanent solution.

As funds move deeper into their investment lifecycle, often five to seven years into a hold period, managers face increasing pressure to generate liquidity for investors. Pension funds, endowments, consultants, and institutional allocators ultimately expect distributions, even during challenging market cycles.

This tension is becoming increasingly important as LPs evaluate future commitments. In today’s environment, realized liquidity may carry as much weight as projected returns.

The emerging advantage of smaller funds

One of the more notable trends in the market is the apparent performance gap between smaller and larger funds in terms of capital returns.

Funds with $250 million or less in assets under management reported average distributions equal to 27 percent of invested capital. By comparison, funds larger than $1 billion reported average DPI levels of just 9 percent.

The contrast highlights an important structural distinction in today’s market: scale can be both an advantage and a constraint.

Large institutional funds often depend on sizable transactions and institutional-quality buyers to create exits. However, liquidity in that segment of the market has slowed considerably since interest rates began rising. Transactions requiring hundreds of millions of dollars in equity have become more difficult to execute, limiting opportunities for large-scale realizations.

Smaller funds, by contrast, may have greater flexibility. Managers operating in the middle market can often transact in less competitive segments where motivated buyers and sellers remain active. Assets with smaller equity requirements may also attract a broader range of purchasers, even during periods of market disruption.

For some managers, that flexibility has enabled them to continue making distributions despite broader market headwinds.

Strategy matters as much as size

Fund strategy has also played a significant role in determining liquidity outcomes.

Interestingly, opportunistic strategies have generally outperformed core and core-plus strategies in terms of DPI during the current cycle. Opportunistic funds in the data set reported median DPI levels of approximately 27 percent, outperforming more stabilized investment strategies.³‍

That outcome may appear counterintuitive at first glance. Traditionally, core strategies are viewed as more stable and defensive. But in a rapidly changing rate environment, opportunistic managers often benefited from greater pricing flexibility and wider yield cushions at acquisition.

In many cases, opportunistic investors acquired assets with clear operational upside, including lease-up opportunities, repositioning plays, or conversion strategies, that created additional margin for execution even as cap rates expanded.

Shorter-duration business plans also proved valuable. Managers focused on acquiring, stabilizing, and selling assets within compressed timelines often completed realizations before liquidity conditions deteriorated further.

By comparison, long-duration core strategies may have found themselves more exposed to valuation resets and refinancing challenges in an environment where buyers became increasingly cautious.

DPI and investor confidence

The growing emphasis on DPI reflects a broader shift in investor priorities.

During periods of abundant liquidity and appreciation, unrealized gains and projected internal rates of return (IRR) often dominated performance discussions. Today, however, LPs are placing greater emphasis on actual distributions and a manager’s demonstrated ability to create liquidity through disrupted market conditions.

That shift may also influence how institutional capital is allocated moving forward.

Managers that successfully navigated the current cycle, particularly those able to generate distributions without relying solely on extended hold periods, may be better positioned to attract investor confidence as fundraising activity resumes.

Performance data may reinforce that trend. Funds under $250 million reported median net IRRs of 10.1 percent, compared to 6.2 percent for funds exceeding $1 billion. While unrealized IRRs should always be evaluated carefully, the figures suggest that smaller funds have delivered stronger liquidity outcomes and potentially stronger overall performance.

Liquidity is reshaping the market

The commercial real estate market remains in a transitional phase, and liquidity constraints continue to reverberate across investment sales, financing activity, and capital formation.

For LPs evaluating managers today, DPI is increasingly serving as a real-time measure of execution and adaptability. Fund size, strategy, vintage year, and exit profile all matter, but the ability to return capital in a difficult market may ultimately become one of the most important differentiators.

As capital begins to move again, managers that demonstrated flexibility, disciplined underwriting, and the ability to generate realizations during a disrupted cycle may stand apart in an increasingly competitive fundraising environment.

Looking to evaluate how liquidity trends are shaping commercial real estate investment opportunities? Connect with Walker & Dunlop Investment Partners to discuss today’s evolving capital markets environment.
 
^{Important Disclosures: This material is for informational purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, any security or investment advisory service. Walker & Dunlop Investment Partners, Inc. (“WDIP”) investment strategies are available only to sophisticated qualified investors. The views expressed reflect the opinions of the author as of the date of publication and are subject to change without notice. Certain statements may constitute forward-looking statements, which are based on current expectations, assumptions, and market conditions and are not guarantees of future results. Third-party data and market information are believed to be reliable but have not been independently verified. Investing involves risk, including possible loss of principal, and no investment strategy can guarantee results. Past performance is not indicative of future results.}

^{1 CBRE — 2025 U.S. Real Estate Market Outlook
2 Multi-Housing News, 5/7/2026
3 Preqin Performance Pulse H2 2025}