Latest Generation of Debt Funds are Flexible and Eager to Get to Work

SAN DIEGO—There is a vital need for capital right now in the commercial real estate industry; specifically by firms that might have gotten overlevered during the era of cheap money and now have a looming refi to handle. Some of these deals may be hairy but still have great potential in the long run. 

Enter the latest generation of alternative lenders and debt funds, which are more flexible and unconstrained in terms of the structure of the loans, according to panelists during a session at the recent Mortgage Bankers Association CREF 2023 conference and expo here in San Diego.

“The lines are blurred … and all non-bank lending has a foot in the debt fund business,” explained panelist Drew Fung, managing director and fund portfolio manager of debt at Clarion Partners. 

For investors, there is a risk but the savvy ones can handle it in exchange for the attractive risk-adjusted return, added Bryan McDonnell, head of US Debt and chair of global debt at PGIM Real Estate. 

Currently, real estate debt comes with yields that stretch from high single digits to lower double ones, representing “an attractive source of relatively stable income from a portfolio construction perspective,” according to a report by Hodes Weill.

The flexibility of some of these funds has allowed “creative ways to bring money to a transaction,” said panelist Christopher LaBianca, managing director of UBS. “It is about filling holes in the product sweep or fill holes.”

Not that borrowers are guaranteed to be able to create a capital stack that completely fits their needs. 

What makes alternative lending challenging, McDonnell explained, is that each firm you go to will have a different structure to it. 

Click the below stories to see already posted coverage of the MBA CREF 23 event and stay tuned for more coverage on GlobeSt.com.

Former Fed Official: Money Should Not Be Free

Economist: The US Will Be in Recession in H1