It has been over a decade since lenders – and their real estate exposures – were in the spotlight. The last time, the wider real estate industry had acquired something of a ‘pariah’ status due to its part in causing the global financial crisis. It was after this crash, though, that the alternative lending sphere got its big break. It has continued to grow and mature ever since.
While troubles in the banking sector in recent months are not on the same scale as 2008, debt funds are making headlines again. In an environment of bank retrenchment and sky-high interest rates, borrowers are increasingly turning to these alternative lenders as they face loan maturities and look to make new acquisitions.
It is just as well, then, that fundraising by the 50 largest capital raisers in the real estate debt space has swelled again in the past year. Managers in PERE’s 2023 league table have secured an aggregate $267 billion for real estate debt in the past five years. This represents an increase of 19 percent on last year.
Life on the road has not been easy for all 50, however. Institutional investors have had myriad reasons to retreat from real estate debt strategies. Aside from hurting projected returns from property investment, the rapid and continual increase in rates heralded the return of the denominator effect on investor portfolios.
In the RED 50, this manifests most notably in two different ways. First, capital committed to managers headquartered in Europe has declined by 5 percent on last year, with four fewer Europe-based firms in the list. Second, a number of firms that placed in the top 10 last year have slid down the rankings, some in dramatic fashion.
With Europe’s decline offset by growth in commitments to North American and Asia-Pacific firms, however, overall fundraising has kept momentum. The longer the repricing of real estate goes on, the greater the appeal of debt exposure relative to equity for investors. This will keep the RED 50 busy for some time yet.