National Real Estate Investor's Diana Bell reports on the rise of alternative lenders and private equity firms offering short-term debt and mezzanine financing as other options, such as CMBS loans, become harder to find.
This surge in debt investing is addressing a capital gap while fueling higher returns for financiers in a low-yield investment environment. And as competition in the bridge and mezz sectors heats up, prices are historically low.
“It is more about debt funds this year and about private equity acting as lenders, providing equity to a debt fund. It’s another way to generate equity returns within a loan,” says Will James, vice president of debt and equity production at NorthMarq Capital, a debt and equity provider for commercial real estate investors.
New bridge lenders including Calmwater Capital, Streamline Realty Funding, ACORE Capital, Amherst Capital and RealtyMogul have come to the market in the past four years. These firms are looking for deals and offer spreads on their loans that range anywhere from 500 to 800 basis points over LIBOR. “They are favoring apartments, student housing, industrial, grocery-anchored retail,” James says.
According to James, most alternative lenders are structuring deals in the 500 to 600 basis points range. “The lowest and highest would be 400 over LIBOR to 700 over LIBOR, about 4.5 percent to 8.5 percent,” he says.