Alternative Lenders Help Fill Commercial Real Estate’s Debt Gap Amid Higher Interest Rates
By Andrew Coen April 23, 2024 9:00 am
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As many banks retrenched from commercial real estate loans amid rising interest rates and a regional banking crisis that erupted in early 2023, a number of alternative lenders jumped into action to carry the flag.
The role of private lenders took on added importance for most of 2023 following the March collapses of Silicon Valley Bank and Signature Bank. Regional banks, which had filled much of the lending void in 2022 when big banks began to scale back originations as interest rates spiked, suddenly also moved to the sidelines, leaving borrowers with even fewer financing options.
The commercial mortgage-backed securities (CMBS) market began to rebound in late 2023, but for much of the year the alternative lending space was the main source for commercial real estate owners in need of fresh capital.
Apollo helped carry the baton for alternative lenders in 2023 with $11 billion of loan originations from 75 deals. It was one of the few lenders that managed to increase its lending volume from 2022.
PGIM Real Estate also capitalized on lending opportunities last year with $11 billion of volume. The firm’s 2023 statistics were down from the $15 billion it originated in 2022, but it managed to execute many larger deals that otherwise would have gone to banking lenders.
“We historically have done larger transactions but the number and the size of some of these transactions were larger in 2023 because it definitely shifted our average loan size a significant amount,” said Melissa Farrell, managing director and head of U.S. debt originations at PGIM. “What we’re starting to see at the beginning of the year as the CMBS market is starting to open up is it’s getting harder to compete on those larger loans, or at least there’s more competition on those larger loans than there was in 2023.”
Private lenders have been better positioned to stand out in the past year without the regulatory constraints that large and small banks have had to contend with, resulting in resistance to taking new loans on their balance sheets.
The Blackstone (BX) Real Estate Debt Strategies team seized on lending opportunities that presented themselves for nonbank lenders in the last year with $4.6 billion of loan originations globally in the year ending March 1, with $3.7 billion concentrated in the U.S. The platform deployed capital into a number of data center, industrial, multifamily and hospitality properties at a time when there was a big gap that needed to be filled in the lending world.
