Investment is flooding into AI infrastructure, but one commercial lending executive sees potential trouble ahead
Capital has rapidly migrated toward artificial intelligence infrastructure amid the wider AI boom of recent years – but a commercial lending executive is questioning whether that could be creating dangerous distortions across the market.
Greg Friedman (pictured top), managing principal and chief executive officer of Peachtree Group, told Mortgage Professional America the surge of interest in data centers could be building toward a bubble that echoes the fiber-optic crash of the early 2000s.
Roughly a third of all new capital flowing into commercial real estate today is being directed toward data centers, Friedman said, even though they only account for approximately 2% of the entire commercial real estate ecosystem.
“I do believe there’s a bubble forming with AI and data centers,” he said. “No-one’s been able to really monetize on the AI trade yet. The hyperscalers are still trying to figure it out. The semiconductors are the ones making all the money right now – they’re getting all the cashflow because the hyperscalers are buying those chips.”
While investors and financial markets are scrambling to quantify the full potential of AI, Friedman said he’s not convinced oof the actual terminal value of data centers.
Every cycle of AI development brings more efficient chip architectures, he said, potentially reducing the computing requirements that make today’s data center investments look indispensable.
“These are huge investments that are being made with the idea that this is going to be needed 20, 30, 40 years from now,” Friedman said. “No-one can give clarity if you’re going to need these data centers five to 10 years from now.”
He sees parallels between the current market euphoria and the fiber-optic boom in the late 1990s, when billions were poured into network infrastructure that became stranded far sooner than investors had expected.
Capital leaving other sectors behind
Beyond that bubble risk, another structural consequence of the AI boom is impacting commercial real estate, according to Freedman: the data center surge is starving other property types of capital.
Hotels, he said, represent approximately 8% of the commercial real estate market – but are receiving only 4% to 5% of incoming capital. Multifamily, which previously commanded an outsized share of investment flows, has now been displaced by the AI infrastructure rush and is attracting only its proportionate share.
Those trends will ultimately start affecting cap rates across multiple property types, according to Friedman, with upward pressure potentially emerging and compounding a market that’s already strained by elevated Treasury yields through the past several weeks.
A market defined by rates
The broader commercial real estate picture is fundamentally an interest rate story, with the 10-year Treasury rising approximately 100 basis points since the end of 2025. That’s driven asset values down and all but frozen transaction activity in many segments.
“Real estate is so sensitive to interest rates,” Friedman said. “The values of these assets moves negatively as rates move up, especially long-term rates.”
The current rate environment is also triggering a wave of loan maturity stress, forcing difficult decisions for owners and investors. Some are handing back keys, and others are selling at distressed valuations.
According to Friedman, many are seeking gap capital to execute refinances in a market where conventional lenders have pulled back significantly.
“You’re starting to see a lot of owners and investors in real estate either potentially hand back the keys, sell the assets at more favorable levels, or need some type of gap capital to be able to effectuate a refinance,” he said.
Opportunity amid the pressure
Friedman nonetheless said that opportunity also arises from market pressure. He believes the years ahead will produce rare entry points for investors with the capital and conviction to act.
“Anytime there’s challenges, there’s huge opportunities that come with it as well,” he said. “There’s no question there’s going to be an unprecedented amount of opportunities over the next couple of years to probably buy assets at more favorable levels.”
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