The evolving dynamics of the US commercial real estate market coupled with the challenges faced by traditional banks are creating a compelling opportunity for institutional investors.
- The US economy has proven surprisingly resilient during the recent rapid rate-hiking cycle. US real estate fundamentals are robust, with the notable exception of the office sector, whilst the escalating impact of climate change looms large across the real estate landscape.
- Real estate capital markets are going through a period of adjustment as they adapt to an era of markedly higher interest rates.
- Against this backdrop, active lenders are in a favourable position. Commercial mortgage-backed securities (CMBS) issuance is very low and banks and insurance companies have reduced their activity markedly, leading to a squeeze in the availability of senior debt.
- Active lenders can negotiate favourable terms, including attractive spreads, when lending on assets that have already repriced substantially.
- The withdrawal of small and mid-sized banks from the market is likely to open space for non-bank lenders who can deploy capital through stretch senior and high yield strategies and be well compensated for taking on risk given that spreads have widened.