Is cheap debt creating a CRE bubble?

Non-bank lending grew by 42% last year

Oct.October 11, 2018 11:00 AM

From left: Tim Sloan, Janet Yellen, and Jerome Powell (Credit: Getty Images and Free Icons PNG)

Former Federal Reserve chair Janet Yellen, her successor Jerome Powell, Wells Fargo CEO Tim Sloan and Goldman Sachs all agree on one thing: commercial real estate prices are too damn high.

Cap rates have been falling across the country, leaving investors with minuscule returns. Goldman Sachs claimed back in May that commercial real estate may be overvalued by 16 percent. And yet there is no sign of a price correction. The reason: real estate investors continue to have easy access to cheap debt.

Mortgage real estate investment trusts and debt funds increased their commercial real estate lending by 42 percent between 2016 and 2017, Bloomberg reported, citing data from Green Street Advisors. The rise of non-bank lenders more than makes up for cautious banks, who increased their lending by just 4 percent.

The rise of non-bank lenders has been particularly pronounced in New York’s construction market. Three of the top 10 construction lenders in The Real Deal’s January ranking are debt funds.

Buoyed by cheap debt, property investment continues to rise. Consulting firm Deloitte recently said it expects deal volume to increase by 13 percent over the next 18 months. [Bloomberg] — Konrad Putzier

Related Article


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

Embattled Prodigy Network CEO Rodrigo Niño to step down

Larry Silverstein and the Tel Aviv Stock Exchange (Credit: Getty Images)

Institutional investors swarm Silverstein’s new TASE bonds

Real estate firms get (green) thumbs down as they jump into climate bonds

With Fed rate cut on the mind, markets enter the week riding high

(Illustration by Carl Wiens)

NYC’s foreign investment landscape in the era of trade wars and heightened nationalism

New York Community Bank CEO and president Joseph Ficalora (Credit: Facebook, iStock)

Freed by Dodd-Frank, NYCB is on the hunt for M&A deals