U.S. investment firms, some of which are referred to as shadow banks, are seeking $32 billion in commercial-property debt as traditional lenders shy away from providing financing directly to property owners.
Private funds are seeking nearly 40 percent more capital than last year, according to Preqin. Meanwhile, banks are increasingly less eager to provide funding to property owners as the prospect of a real estate bubble looms large, Bloomberg reported.
“These guys aren’t scared of an empty building,” said Steven Delaney, an analyst with JMP Securities, told Bloomberg “These are the loans banks don’t want. There is a tremendous opportunity and a need for commercial-property owners for more types of financing than the commercial banking industry as a whole is willing to provide.”
RXR Realty , Starwood Property Trust and the Blackstone Group, for instance, have been very active in this space. RXR agreed to provide Extell Development with a $463 million mezzanine loan for One Manhattan Square. That loan was recently downsized by $163 million.
Starwood, a mortgage real estate investment trust, can write big loans that banks under the eye of the federal government can’t match. It was one of the first lenders to provide a large construction mezzanine loan to Related Companies and Oxford Properties Group for Hudson Yards, lending $475 million in equity in 2013. At the time, such a move was unheard of, sources told TRD.
“A borrower finds it much easier to transact with a single lender versus having to negotiate with multiple banks,” Starwood CEO Andrew Sossen told Bloomberg.
Banks are still active, in that they are providing financing to investment firms, which is less risky than extending credit directly to property owners since they are the first to absorb loss. [Bloomberg] — Kathryn Brenzel