Borrowers in commercial real estate are navigating a market shaped not only by macroeconomic shifts, but also by a fundamental rethinking of lending among originators—a dynamic explored in depth on a recent episode of Dechert’s 4 Real podcast, where firms like Värde Partners are adjusting strategies in ways that bring both new opportunities and fresh challenges for seasoned investors.
One persistent theme from the conversation with Jim Dunbar, partner and head of real estate lending at Värde, and Missy Dolski, managing director and global head of fund finance and capital markets, is the decisive return of non-bank capital to the forefront. Dolski noted, “We, like 80% of all of the fund managers out there, utilize sublines to manage liquidity…our experience as a borrower of that product was such that you were really at the whim of bank balance sheets, liquidity, health, et cetera.” Her point was that private capital is now essential as banks can no longer keep pace with the growth of the asset class. Värde, for example, leans into the subscription line space as a foundation, then builds deeper relationships with managers by offering higher-yielding solutions rooted in its domain expertise—especially in real estate.
From a borrower’s perspective, what matters most is how originators are viewing the risks and rewards amid shifting funding sources. Dolski described the current toolkit as “bank repo lines… CRE CLO market… one-off A notes to partners,” emphasizing that increased optionality and the ability to “actively manage our liabilities” are critical for originators to generate returns for investors. For sponsors, this translates into growing flexibility in structuring debt, paired with closer scrutiny of underlying business plans and collateral. As Dunbar explained, “Our approach to how we originate credit and where we want to deploy capital…hasn’t changed. It’s really been grounded…in who is that sponsor, how we think about valuation, and how we structure those loans.”
Yet, the appetite for risk and the spectrum of asset classes continue to evolve. Dunbar observed that roughly 60% of Värde’s current portfolio is in residential, ranging from multifamily and student housing to build-for-rent. Hotel lending forms another 20%. He detailed a deliberate tilt toward “lease-up financing, so taking out construction loans, relative to value-add business plans where there’s a need to push rents post a renovation.” The rationale? A significant amount of supply is hitting markets now, and stabilized assets—particularly those needing flexible, prepayment-friendly financing—are in higher demand from borrowers wary of locking into restrictive, fixed-rate instruments.
Market distress is inevitable, but how originators define and approach it influences borrower outcomes. Dunbar pointed out, “We are seeing a significant opportunity to put capital to work today from a lending perspective…The word distress gets used in a lot of different ways. There’s both fundamental distress at an asset level, and then there can be distress from an owner of that risk. Today, we’re not seeing a lot of stress forcing people to sell.” This means that, for many borrowers, experienced originators are not treating the risk as a signal to force sales, but as a lending opportunity—one where liquidity and loan modifications can keep fundamentally strong properties afloat, even if headline figures suggest rising maturities.
Issuance trends are also feeding back into originator behavior and, by extension, what borrowers see in the market. “With things moving this fast, do you see issuance continuing at this pace?” the hosts asked. Dunbar replied, “There are more creative structures out there. There are more pockets of capital out there. There are a lot of big asset managers that manage insurance now…as from the borrower hat on, it’s great. It’s just [a] better optionality for us.” The push for origination volumes is leading to accelerated innovation—and with it, a market brimming with alternatives not only from banks, but from an expanding cadre of private lenders.
Near-term, every borrower should be tracking the direction of the 10-year Treasury and bank regulatory environments with vigilance. As Dunbar warned, further rises in the 10-year will weigh on real estate values, while ongoing shifts in bank regulation could alter the competitive landscape for capital sources overnight. Nevertheless, Dolski highlighted that it's an "attractive time to be a borrower,” due to relative fundamentals and more disciplined new supply.
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