Cash is piling up for real estate debt investors with a crisis delay…
(MENAFN- Gulf Times) Real estate debt investors are hoarding cash, looking for opportunities to lend to commercial property owners affected by the pandemic.
Real estate debt funds, including at Blackstone Group Inc, raised $14.1 billion from April to September, up from $15.7 billion a year earlier, according to research firm Preqin Ltd.
There are now signs of a thaw. On the one hand, the competition is intensifying to make that money work, prompting some lenders to take on higher risks. On the other hand, borrowers are growing more desperate as loan extensions begin to expire at malls, hotels and even some offices that are still struggling as Covid-19 continues to ravage the US economy. .
“If you’re willing to do this, you’ll get plenty of offers, but you have to be willing to play in these areas and take risks,” said Mark Fogel, managing director of New York-based Acres Capital LLC. . commercial real estate lender. He said he was getting almost twice as many calls from borrowers looking to refinance their debt or get bridge loans to stay afloat than just a few months ago.
Better returns: Debt fund investors are eager to see returns seven months after the coronavirus threw commercial real estate markets into disarray. When bank credit begins to dry up, investors looking for higher yields tend to turn to private credit to fill the void.
“So much money has been raised and most of it has been raised for distressed returns, but there hasn’t been a lot of distress,” said Dave Karson, vice president at brokerage Cushman & Wakefield. “It is expensive not to invest the money you have raised.
Commercial real estate transactions have plunged during the pandemic, with commercial and hotel properties particularly affected by social distancing. This encourages banks and other major lenders to adopt a cautious approach, even if activity begins to pick up a little.
Yet big companies are ready to pounce. Blackstone, one of the world’s largest real estate lenders, closed an $8 billion real estate debt fund in September, the largest ever. This added to his growing pile of cash.
The debt fund is looking for opportunities stemming from the “market dislocation” caused by Covid, said Jonathan Pollack, global head of real estate debt strategies at Blackstone.
As the world’s largest lender, the firm can also be more selective, focusing on larger, high-quality deals, he said. Its debt fund will take into account everything from industrial financing to hotel loans in attractive coastal markets, Pollack said. Blackstone recently loaned $110 million for a recently purchased office complex in Culver City, California.
“It’s a bit early to have a strong opinion given the magnitude of the disruptions to the flow of people and the flow of capital that are occurring with Covid,” Pollack said in an interview. “It will take some time to see how it goes and we will be careful in the meantime.”
So far, lenders have been drawn to safer bets like refinancing office buildings with long-term tenants or warehouses leased to Amazon.com Inc, which have been boosted as buyers avoid physical stores . But competition has been fierce for the small pool of attractive offers, pushing prices beyond pre-Covid levels in some cases.
Industrial ‘euphoria’: “Some lenders are willing to take on more risk at very low rates in these segments due to the euphoria around the industry right now,” said Josh Zegen, co-founder of Madison Realty. Capital, a middle-market lender that has raised more than $900 million since March.
Madison Realty was drawn to apartment buildings. The company considers multi-family properties safer than hotels or retail because there is more transparency around rent payments and liquidity in the market. And there’s less competition for the deal than for industrial properties, Zegen said.
Madison recently closed a $173 million construction loan for an apartment building in Manhattan’s Chelsea neighborhood, a few blocks from Hudson Yards, where finance and technology firms have signed office leases.
Blackstone is also open to construction loans. With all the uncertainty around the rapidly changing market, a key challenge now is to close the gap between borrowers and lenders, Pollack said.
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