Valuation Volatility and Investment Risk

The final discussion of the 2026 Marshall & Stevens Water Forum examined how water scarcity is entering decisions about financing, underwriting, valuation and development. The panel addressed the treatment of water risk in data-center credit assessments, changes in agricultural investment analysis, water resilience as a data-center siting consideration, the value of natural ecosystems, the role and cost of new water supplies, and the practical constraints affecting water transfers.

The Forum was moderated by Jennifer Simmonson, MAI, Director in the Real Estate practice at Marshall & Stevens. She was joined by Megan Nicholas Harper, Director of Water Resources at Nuveen Natural Capital; Rosemary Knight, Professor in Stanford University’s Geophysics Department and Founding Director of the Center for Groundwater Evaluation and Management; Nati Louzon, VP of Global O&M at IDE Technologies; and Bobby Majumder, Partner at FBT Gibbons and Co-Head of the firm’s Energy Group. Together, the panel brought perspectives spanning groundwater science and management, institutional agricultural investment, water technology and operations, and energy and industrial development.

Water Risk Is Entering Data Center Credit Assessments

Bobby Majumder described water scarcity as a financially material investment risk for data centers. He said banks and asset managers are incorporating both water risk and community opposition into their credit assessments of individual facilities being considered for financing.

Majumder referred to due diligence conducted by major financial institutions before funding artificial-intelligence infrastructure. He also described restrictions on credit-facility drawdowns when permits and leases are not yet in place. He said those restrictions protect lenders against the risk that a project could be cancelled after funds have been drawn because the necessary approvals were not obtained.

“Banks and asset managers are explicitly incorporating community opposition and water risk into their credit assessments.” – Bobby Majumder

To illustrate the geographic exposure, Majumder cited data indicating that approximately one-quarter of existing data-center facilities and half of those under construction are in regions projected to face greater water stress by 2050. He also cited an S&P Global analysis in which 45 percent of 9,000 data centers were projected to have high exposure to water stress by 2050.

Despite that longer-term exposure, Majumder said the near-term credit impact may be limited because water-sourcing costs currently represent a small percentage of a data center’s total operating expenses. He identified power as a larger operating cost.

Agricultural Underwriting Now Examines Water Alongside Land

Megan Nicholas Harper described a significant change in the way agricultural investments are evaluated. Ten years ago, she said, water was an important operating consideration, but underwriting often assumed that supplies would remain available, either through spot-market purchases or continued access to wells. Analysis focused heavily on soil quality, location, crop suitability and acreage.

That assumption has changed. Nicholas Harper said her team now evaluates water as closely as the land and incorporates escalating water costs into underwriting for investment periods that can extend 20 or 30 years. The work includes detailed analysis intended to establish realistic investment requirements over the holding period.

“Without water, you’re basically just farming dirt.” – Megan Nicholas Harper

Nicholas Harper also described efforts to convert water available during wet years into longer-term water security and value. Technology and infrastructure are part of that analysis. She said the properties her organization manages use high-efficiency drip irrigation, flow meters, telemetry, pressure transducers, weather stations, evapotranspiration-based irrigation scheduling, automation and monitoring to support operating efficiency and resilience.

In describing the change in asset analysis, Nicholas Harper contrasted a traditional per-acre approach with one that accounts more directly for water. Two properties may have similar soils and crop potential, she said, but the property with multiple water sources, stronger recharge capability and more flexibility under SGMA would receive a substantially higher value in her organization’s analysis and would be expected to appreciate more over the long term.

Regulation and Basin Conditions Affect Agricultural Analysis

Nicholas Harper said regulation has become a larger part of agricultural underwriting. She described SGMA as creating greater transparency around groundwater sustainability while also revealing differences between regions.

Her team now devotes considerable time to understanding basin conditions, groundwater-allocation frameworks, access to surface water, sustainable yield and the level of operation that can be supported within that yield. These factors are considered alongside the physical productivity of the property.

Nicholas Harper identified durable water supplies, recharge opportunities, operating flexibility and investment in long-term stewardship as characteristics of agricultural assets that are better positioned in a water-constrained future. She said those assets are the most likely to maintain and increase their value as water becomes scarcer.

“We need to maximize our water usage and using technology to enable us to do that has really been at the forefront.” – Megan Nicholas Harper

Water Has Become a Data Center Siting Constraint

Majumder described a corresponding change in data-center site selection. He said the decision was previously treated as an optimization of two variables: land and available power. Water resilience must now be considered with both.

The analysis he described is specific to the proposed location. Because federal agencies address wastewater quality while water consumption is governed at state and local levels, Majumder said developers need jurisdiction-by-jurisdiction mapping rather than portfolio-level generalizations. He identified the watershed’s stress profile, the jurisdiction’s regulatory posture, exposure to moratoriums and the proposed cooling technology as factors that should enter the siting decision.

“You’ve got to get local. There’s not a one-solution thing for this.” – Bobby Majumder

Majumder also offered an explicitly editorial view of statewide moratoriums. He said he believed they risk creating what he called a “digital desert” by causing communities to miss the connectivity, economic development and ancillary revenue associated with data centers. His stated alternative was more granular analysis of prospective locations.

Natural Ecosystems Are Also Assets Exposed to Water Stress

Rosemary Knight expanded the valuation discussion beyond agricultural land and data infrastructure. Asked which asset types are most vulnerable to value erosion from water stress, she identified natural ecosystems, plants and animals.

Knight based that assessment on her view that their value has not been adequately accounted for and that the effects of their loss are therefore not fully appreciated. She pointed to Stanford’s Natural Capital Project and its work to quantify Gross Ecosystem Product rather than only Gross Domestic Product. She described the approach as assigning dollar values to services provided by nature, including clean water, clean air, cooler temperatures, community health benefits and pollination.

“Our natural ecosystems have great value.” – Rosemary Knight

Knight said failing to consider ecosystems’ freshwater needs could harm biodiversity and produce widespread consequences. She connected the measurement of ecosystem services to water-allocation decisions, saying natural systems need to be represented when those decisions are made.

The Cost of New Water Depends on Local Options

Jennifer Simmonson asked Nati Louzon which alternatives could provide new water for California at the lowest cost. She framed the question around an estimated annual groundwater overdraft of 1.5 million to 2 million acre-feet in California’s Central Valley and a calculation that replacing that volume with coastal desalination would require approximately 27 to 36 plants at the scale of the Carlsbad facility.

Louzon disagreed that development at that scale should be considered unrealistic. He compared the estimate with Israel, where he said the combined capacity of existing facilities is equivalent to approximately seven Carlsbad plants despite the country’s smaller size. At the same time, he agreed that relying on only one source is not reasonable.

Louzon described Israel as using desalination alongside well water and the Sea of Galilee. He said each area must evaluate the supplies available locally, the water quality required by each user and the cost of obtaining water from different sources or transporting it from other areas. Environmental considerations, plant performance, maintenance and operations also enter that calculation.

Louzon did not identify one universally cheapest source. He described the answer as a combination of local supply options, required water quality, delivery cost, environmental considerations and the operating performance of the facilities involved.

Water Transfers Depend on Infrastructure and Economics

Nicholas Harper addressed whether water transfers could help diversify revenue within an investment portfolio. She said transfers can provide a solution in some areas, but their potential value depends on infrastructure, location, reliability and cost. In practice, she explained, implementing transfers is more cumbersome than discussions of water markets sometimes suggest.

Transfers require infrastructure capable of moving water efficiently between districts. Location and proximity to reliable conveyance therefore affect whether a transfer can occur. Nicholas Harper also noted that moving water through canal systems and water districts adds costs to the purchase price, potentially making the transaction uneconomic.

She identified an additional difficulty in parts of the western and southern San Joaquin Valley: areas with the greatest need for surface water can also lack reliable access to the infrastructure needed to convey it. She described those areas as dependent on groundwater and said the absence of surface-water access complicates the transfers they would need most.

Nicholas Harper said there is hope that a water market could develop and create value, with Australia sometimes cited as an example. She cautioned, however, that Australia operates in a different setting and that the California market remains in development.

“Water transfers can be a solution in certain areas, but there’s a lot of constraints that come with it.” – Megan Nicholas Harper

Her comments identified infrastructure, access, reliability and cost as factors affecting whether a water transfer is practical.

Water Risk Enters Value Through Different Channels

The final Forum discussion showed the different ways panelists said water enters investment and asset analysis. Majumder described its role in data-center credit assessments, permitting risk and site selection while noting that water remains a smaller near-term operating cost than power. Nicholas Harper explained how water supply, cost, regulation, technology and infrastructure now receive greater attention in agricultural underwriting. Knight identified natural ecosystems as assets whose value and dependence on freshwater have not been adequately recognized. Louzon described the selection of new water sources as a local calculation involving availability, quality, cost, environmental considerations and plant operations.

The audience discussion added specific considerations related to water transfers. Nicholas Harper said their feasibility depends on conveyance infrastructure, proximity, reliability and the cumulative costs of moving water between districts.

The panelists did not identify a single valuation adjustment applicable to every asset. They addressed water through financing conditions, permit and cancellation exposure, long-term water costs, basin allocations, recharge and supply diversity, site suitability, operating technology, ecosystem services, infrastructure and the feasibility of moving water to where it is needed.

Thank you for exploring this four-part series examining the principal themes and perspectives shared during the 2026 Marshall & Stevens Water Forum.