The Real Deal New York

Nonbanks eat up lending market share with 40% increase in loan origination

Greater competition could lead to the funding of riskier loans, according to some analysts
August 22, 2018 01:30PM

California State Teachers’ Retirement System CEO Jack Ehnes and Children’s Investment Fund Foundation CEO Kate Hampton (Credit: Getty, Twitter, and iStock)

While banks struggle with financial regulations, non-conventional lenders are taking a bite out of market share.

Nonbanks originated nearly $60 billion last year, a 40 percent increase from 2014, the Wall Street Journal reported, citing data from Green Street Advisors. Now, those lenders account for 10 percent of market share, up from 2 percent in 2014.

Private equity firms, pension funds and government funds are delving into higher-risk lending including construction and bridge loans, while big banks constrict loans following the 2010 Dodd-Frank financial overhaul. Some analysts told the Journal that because of increased competition, there’s a greater chance of overbuilding or funding of risky construction projects.

But there’s no indication that that competition will lessen anytime soon. Last year, real estate debt funds managed by private equity firms raised $32.3 billion, up from $22.5 billion in 2016, the report stated, citing data from Prequin.

The California State Teachers’ Retirement System, which owns around $29 billion in real estate, recently announced it would allocate $500 million to a new account managed by a real estate debt firm.

In New York, the Children’s Investment Fund, or TCI Fund Management, a U.K.-based lender that evolved from a charity, has signed multiple $1 billion loans in recent years.  Other non-conventional firms who have made large investments in the debt fund business include Goldman Sachs, Oaktree Capital Management and the Blackstone Group.

Nonbanks are now the leading mortgage lenders in many metro areas, including South Florida,  Some say the rise of nonbanks allows borrowers easier access to mortgages. Others are critical that these companies aren’t under the same regulatory scrutiny as banks. [WSJ] — David Jeans