SAN DIEGO—One of the more interesting trends this cycle has been the growth of debt funds. So said panelists at Monday's MBA CREF/Multifamily Housing Convention and Expo 2019.
“While debt funds have come into their own as a mainstream source of capital CRE finance, other capital sources also leverage their strategy by providing warehouse lines, investing in funds or even acquiring funds,” said panelists.
Jack Gay, managing director and global head of debt at Nuveen Real Estate, discussed different strategies being employed as well as various implications for other capital sources and noted that he sees an open market. He noted that “It is an opportunity rich environment… People are looking for ways to get value-add deals executed.”
Banks are really more regulated, agreed all panelists. “All the risk departments have been beefed up and strengthened up and those risk departments really do put the clamps on the risk. When you put significant ropes on that source of capital, it does have a significant impact on the lending market. Global banks are still gun shy on real estate portfolios,” panelists explained.
But is there too much capital in the space?
Justin Guichard, managing director of Oaktree Capital Management LLC, says his firm continues to find innovative ways to work with its borrowers. “After borrowers, our best partners are banks. We are in a good position relative to a lot of competitors.”
He explained that “If you have a $400-million debt fund and you are trying to build a diversified portfolio, what are you going to put in each position, $20 million? That forces you to cater to certain demographics and borrowers. We haven't seen the number of funds raised that focus on that type of borrower both from a caliber of asset and from a capital requirement perspective so we feel comfortable with what we are investing in. Our targets are in line with what our investors expect.”
Guichard added that “The regulatory environment has been a tailwind. As the industry matures, we are being viewed as a more permanent part of the capital structure. We are getting closer to the end of the cycle and have raised large distressed debt funds, and we are preparing ourselves for the next downturn. When the environment become less robust than it is today so my perspective is that as the cycle evolves, our competition will also evolve.”
Three or five years from now, Gay added, “There will likely be a downturn that has taken hold and maybe we will be on the way back up.”
Check back with GlobeSt.com for more coverage from MBA's CREF/Multifamily Housing Convention and Expo 2019.
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