US debt funds are flourishing, but are they becoming complacent?

Private mortgage funds raised $20B in 2016: report

New York /
Mar.March 14, 2017 06:31 PM

U.S. private fund managers are doubling down on debt, but some observers are worried they might be underestimating the risks.

Last year, the total sum raised by real estate debt funds rose to $20.4 billion, from $12.2 billion in 2015, according to research firm Preqin. The appeal of issuing debt is that it protects investors against falls in property values because equity holders take the first hit.

“Prices are really, really stretched,” pension fund Kentucky Retirement Systems’ interim CEO Rich Robben told the Wall Street Journal. “We feel, at this point, we’re happy to lend to you and let you take the haircut.”

Still, critics point out that the new rush into debt and increased competition may lead to overpricing. “There’s a perception that when you say debt, it implies safety,” said Michael Stark of advisory firm Park Hill Real Estate Group. “But if the collateral you’re lending on is not a stabilized asset, there’s still some underlying risk that needs to be priced accordingly.”

In New York, Blackstone’s debt funds have been active lenders, backing projects like CIM Group, LIVWRK and Kushner Companies’ acquisition of the Watchtower office building in Dumbo.

The Real Deal reported last year that more and more development firms are launching lending businesses in part because properties are seen as overvalued while cautious banks have left an opening in the finance markets. [WSJ] — Konrad Putzier


Related Articles

arrow_forward_ios
With a cooling trade war, stocks perform well, including real estate. (Credit: iStock)
Real estate stocks push up this week as U.S.-China trade tensions ease
Real estate stocks push up this week as U.S.-China trade tensions ease
416 West 25th Street and Maverick Real Estate Partners principal David Aviram (Credit: Google Maps and LinkedIn)
Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case
Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case
Leslie Alexander with 1117 Main Road in Riverhead (top) and 2045 Sound Avenue in Mattituck (Getty, Compass)
Leslie Alexander lists pair of North Fork properties with development rights
Leslie Alexander lists pair of North Fork properties with development rights
(Photo Illustration by The Real Deal with Getty Images)
Office occupancy stalls after Labor Day push
Office occupancy stalls after Labor Day push
A photo illustration of 1776 Nostrand Avenue (Getty Images, Google Maps)
Flatbush landlord sentenced in deadly space heater fire
Flatbush landlord sentenced in deadly space heater fire
Tankhouse’s Sam Alison-Mayne with 452 Union Street (Facades Plus, Google Maps, Getty)
Multifamily deals dominate strong week of NYC i-sales
Multifamily deals dominate strong week of NYC i-sales
Steve Roth and renderings of 260 11th Avenue (Getty, Profile New York)
Vornado lays out vision for Otis Elevator Building complex
Vornado lays out vision for Otis Elevator Building complex
From left: Arch Companies' Jeff Simpson and Hello Living's Eli Karp along with a rendering of 1580 Nostrand Avenue (Getty Images, Arch Companies, Hello Living)
Eli Karp’s Hello Living says goodbye to Flatbush project
Eli Karp’s Hello Living says goodbye to Flatbush project
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...