What’s With All the Debt Funds?

Panelists in the capital-markets session said that alternative lenders are beginning to resemble traditional lenders in many ways.

SAN DIEGO—Traditional lenders used to make up the bulk of CRE lending, but now alternative lenders are viewed as a viable lending source, often backed by institutions, Money360’s president Gary Bechtel told attendees at RealShare San Diego’s capital-markets session Wednesday. The panel explored the most current and challenging issues in San Diego’s financing realm.

Moderator Olga Alworth, SVP with George Smith Partners, asked the panelists why are there so many debt funds in the market, which has seen quite a few alternative lenders enter the space. Chad O’Connor, senior managing director of capital markets for Marcus & Millichap Capital Corp., said the influx of debt funds started before the recession, but many were too attracted to risk and didn’t survive. Now, debt funds are much more cautious in their underwriting and are more focused in their approach. Traditional lenders are seeing the need to create more traditional banking products and fewer CRE loans doing less lending since “the handcuffs are getting tighter and they’re not coming off.” He added that there’s much more room for alternative lenders in the market, and he sees this as a segment that will continue to grow.