Baking in Spline Architect means that your placed and generated meshes are saved into the Level, so baking is necessary for your buildings to appear in the game. Baking might change some properties for shadows too, so that’s something to try out.
You are right, Instanced is far more better for performance, but having walls baked into StaticMeshComponents instead of InstancedStaticMeshComponents might change how shadows are calculated, worth a try baking with these two baking methods.
Great question about PhysicalMaterial. Right now there’s no way to do that automatically, however when you bake your wall, you can select the floor mesh and set the PhysicalMaterial there (double click on the floormesh to select that Component). I will add an option for the future version to do that from the WallPreset, thanks.
By the way, you can set PhysicalMaterial on your MaterialInstance you use for your floors. That might do the trick, actually. Let me know if it works.