Private Debt Steps Up

Source: JP Morgan Asset Management

It’s no secret banks have are being more cautious about their real estate lending as they work through issues in their existing loan books. The limited availability of financing has taken a toll on transactions volumes, and in turn, cap rates. Yet, the absence of bank financing has opened the opportunity for growing world of private credit.

According to Reuters[1], major global investors are "making deeper inroads into lending to commercial property" as they "snap up market share from retreating banks and bet on an end to the sharp drops in real estate prices." Funds like PGIM, Brookfield, M&G, and AXA are focusing on "logistics, data centres, multi-family rentals and the high-end office market."

LaSalle Investment Management aims to grow its real estate debt investments by 40% to $7.6 billion. Despite the risks, these "alternative lenders believe the worst may have passed and they can generate attractive returns as valuations recover."

The increasing involvement of investment funds in commercial real estate lending could help revive transaction volumes, which have been dampened by the sector's slump and banks' reduced lending appetite. As these alternative lenders step in to fill the financing gap left by traditional banks, they may provide the necessary liquidity to support property acquisitions and refinancing. This, in turn, could contribute to a gradual recovery in the commercial real estate market, particularly in the logistics, data center, multi-family rental, and high-end office segments targeted by these funds.

[1] Big-name funds pile into real estate debt as banks retreat | Reuters