Lending tree: Real estate debt funds now have $57B to deploy

The record amount could increase competition, prompting lending on riskier projects, industry pros say

Debt funds have some $57 billion to invest. (Credit: iStock)
Debt funds have some $57 billion to invest. (Credit: iStock)

Real estate debt funds have a mountain of money to deploy, a staggering amount that could lead to more lending on risky projects, some industry pros say.

These funds now have $57 billion to lend as construction loans, bridge loans and other risky debt, according to the Wall Street Journal.

“People are concerned about all that capital chasing limited opportunities,” said Tom Carr, head of private debt at alternative capital tracker Preqin.

Following the financial crisis, real estate debt funds and other alternative lenders stepped in to fill the void in available capital left by institutional lenders.

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These alternative lenders handed out $60 billion in loans last year, a 40 percent increase over 2016, according to the Journal. They now have a 10 percent share in the real estate lending market, up from 2 percent in 2014. Developer Larry Silverstein set up his first lending venture, Silverstein Capital Partners, this year.

Risky loans are finding their way into commercial mortgage-backed securities as well. Around 73 percent of all loans in CMBS in the first nine months of the year were interest-only loans that can be problematic when they mature, if rates are higher or property values lower, according to the Journal.

That’s up from 30 percent in 2012 and higher than the pre-financial crisis peak of 60 percent. Debt funds continue to seek more capital — there are 106 on the market looking for $40 billion to invest.

Still, uncertainty over interest rates and other market factors has some in the alternative lending industry playing the market conservatively. [WSJ] — Dennis Lynch