As many banks scale back commercial real estate lending in the wake of rising interest rates and the regional banking crisis that erupted in early 2023, many alternative lenders stepped up to lead the way.
Following the collapse of Silicon Valley Bank and Signature Bank in March, the role of private lenders has become even more important for much of 2023. Community banks, which had filled much of the lending void in 2022 as interest rates soared and big banks began scaling back on lending, suddenly found themselves on the sidelines, leaving borrowers with even fewer financing options.
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The commercial mortgage-backed securities (CMBS) market began to recover in the second half of 2023, but for much of the year, the alternative lending sector was the primary source of funding for commercial property owners in need of new capital.
Apollo helped take over the alternative lender baton by originating $11 billion in loans across 75 transactions in 2023. The company was one of the few lenders that managed to increase its loan volume from 2022 onwards.
PGIM Real Estate also took advantage of $11 billion in lending opportunities last year, and while the company's 2023 stats are down from the $15 billion it generated in 2022, it managed to execute a number of larger deals that would have otherwise gone to bank financing.
“We've done larger deals in the past, but some of the deals have been larger in number and size in 2023 as the average loan size has fluctuated significantly,” said Melissa Farrell, managing director and head of U.S. debt origination at PGIM. “What we're starting to see earlier this year as the CMBS market starts to open up is that it's getting harder to compete for these larger loans, or at least it's getting more competitive for these larger loans than it was in 2023.”
Private lenders have been in a prominent position over the past year because they are free of the regulatory constraints that big and small banks have had to contend with and have no reluctance to take on new loans on their balance sheets.
Blackstone's (BX) real estate debt strategies team seized the lending opportunities presented to non-bank lenders last year, originating $4.6 billion in loans globally in the 12 months ended March 1, with $3.7 billion of that concentrated in the U.S. The platform deployed capital in a number of data centers, industrial, multifamily and hospitality properties at a time when there were significant gaps in the lending world that needed to be filled.