Late in 2018, Daniel Lebensohn, co-founder at BH3, started adebt opportunity fund to purchase non-performing loans. "We arespecifically targeting non-performing loans from banks and what wecall tourist lenders or folks that have come into the space thatare bridge lenders," Lebensohn says. "They took over a huge chunkof the business that conventional lenders shied away from due tothe new regulations that emerged after the recession."

These capital providers are handling more sensitize, higher-risktransactions. That makes it more likely that their loans will runinto problems, according to Lebensohn. "That's not to say somebanks heavily into construction lending won't have their share ofdistress," he says. "But a lot of these tourist lenders pivotedfrom equity to debt. Everyone and their grandmother is in thelending space today."