September 24, 2019
The latest research by Real Capital Analytics (RCA) reveals a competitive U.S. commercial real estate mortgage market. The debt fund segment of the market has continued to increase its market share, edging ahead of the life insurance companies for the first half of 2019.
The fear for some, points out RCA’s CRE economist Jim Costello, is that debt funds are going to load up the financial system with risks similar to what the CMBS originators did in 2003 to 2007. Costello notes, “The debt funds are not taking on the same sort of risks of the CMBS originators in the last cycle: these groups are taking on new types of risks. Importantly, these debt funds have skin in the game that the CMBS market did not in the last cycle.”
RCA reports life insurance companies hold 10% share of lending for core investment strategies, while debt funds hold a 9% share. However, debt funds captured more market share than insurance company lenders in the first half of 2019 in the riskier investment styles. Still, Costello says the debt markets remain intensely competitive with most categories of lenders capturing at least a 10% share of lending activity.
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