While Banks Pull Out, Investment Funds Double Down On Real Estate
Multiple funds told Reuters they planned to increase their credit exposure to property as banks back off from commercial real estate.
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Large investment funds are betting big on the beleaguered commercial real estate sector as banks pull back, according to a report in Reuters.
Funds PGIM, LaSalle, Nuveen, Brookfield, QuadReal, M&G, Schroders, Aviva and others all told Reuters they planned to increase their credit exposure to property, with most funds focusing on multi-family properties, logistics, data centers and high-end office space, which continues to show signs of distress, according to the report.
“If I look at our strongest bet currently, it’s probably real estate debt,” Isabelle Scemama, who leads AXA’s alternative investments operation told Reuters.
Lasalle Investment Management, which manages a global portfolio of $89 billion, told Reuters its target was to grow its real estate debt investments by 40 percent to around $7.6 billion over the course of the next two years, targeting distribution, hospitality and student housing properties.
Offices continue to undergo their biggest slump since the 2008 financial crisis, spurred by remote and hybrid work policies. Over $38 billion worth of office space currently faces the threat of default, and building owners who bought during pandemic-era high real estate values are now selling for half off 0r more.
However, fund managers told Reuters they believe the worst has passed, and the market is ripe for opportunity.
“Historically through real estate cycles, you would find that generally loans made at the bottom of the cycle… tend to have the lowest delinquency rates and the highest spreads,” Jack Gay, global head of debt at Nuveen told the newswire.
Private equity outfits are also getting in on the market, according to the report. Apollo Global Management has reportedly launched a dedicated European real estate debt fund with a target of a billion Euros by next year, a source told Reuters.
And while banks at large have pulled back heavily from commercial real estate loans, the fund management arms of some major banks are leaning in. Goldman Sachs Asset Management disclosed on Monday that it had closed a real estate credit fund with over $7 billion in lending capacity — its largest to date.