Large Providers Still Dominate CRE Equity
As both debt and equity sources offer bridge lending products, the big players still rule the pure equity space.
Commercial real estate has always had its fair share of capital market providers, especially in recent years. That said, some things are changing, according to Ryan M. Haase, director of capital markets for Franklin Street.
“Lately, we have seen that trend falling off, but we have seen many current providers expanding into alternative products to find yield or increase production,” Haase says. “This is a trend that occurred in the last expansion as well, with many of those non-core product lines terminating in a contraction. For example, several permanent lenders have ventured into bridge or construction lending for a second time in this expansion.”
These new product lines provide investors with a lot of options.
“There are all of these different capital structures out there with funds offering a lot of different preferred equities,” says Hilary Provinse, executive vice president and head of mortgage banking for Berkadia. “You really have to be creative about some of the structured equity opportunities that are out there that aren’t your traditional joint venture equity.” Even with those changing dynamics, the stalwarts are still around. “There’s been a lot of capital raised around preferred equity, but the traditional equity providers are still there,” says Doug Root, co-founder and managing partner of Blackfin Real Estate Investors.
In fact, Gerard Sansosti, executive managing director and debt and loan sales platform leader for JLL, says the big equity providers are the ones growing in this environment.
“The folks that are in the market have been in the market, have a great track record and are the people that can raise equity funds,” Sansosti says. “I think it’s one of those ‘the rich get richer’ situations with the Blackstone’s, the Brookfield’s, the Starwood’s and the JP Morgan’s. They can go out and raise money because they’ve done multiple funds and they have multiple investors that want to reinvest.”
In this environment, Sansosti says it’s hard for new entrants to emerge. “It’s very challenging to go out and try to raise a fund,” he says. “I think people are really sticking to companies that they have done business with, that they know and that they have had success with. So, I think it will be challenging for newer players to come into that market.” While the large players stand out, Paul M. Fried, executive managing director and head of equity capital markets for Greystone Co., sees one route for more small-scale investors to provide equity in commercial real estate.
“I think that the crowdfunding-type approaches that allow retail investing seemed to have found some solid footing,” he says. “It may not expand greatly, but it looks like it’s here to stay.”