Funds take up slack as banks retreat from financing

Betting on real estate debt is not for the faint-hearted. Photo: Getty

Iain Withers

Some of the world’s largest investors are making deeper inroads into lending to commercial property, as they snap up market share from retreating banks and bet on an end to the sharp drops in real estate prices.

US fund firms PGIM, LaSalle and Nuveen, Canada’s Brookfield and QuadReal, Britain’s M&G, Schroders and Aviva and France’s AXA all told Reuters they plan to increase their credit exposure to property.

Most are focusing on lending to logistics, data centres, multi-family rentals and the high-end office market. The office sector more broadly continues to struggle, deterring funds.

“If I look at our strongest bet currently, it’s probably real estate debt,” said Isabelle Scemama, who heads up AXA’s €183bn alternative investments arm.

LaSalle Investment Management, which manages $89bn globally, said it was targeting growing its real estate debt investments by 40pc to around $7.6bn over two years, including in distribution, hospitality and student housing.

Betting on real estate debt is not for the faint-hearted. The global commercial property industry, in particular offices, is still in the grip of its biggest slump since the 2007-09 financial crisis.

But alternative lenders believe the worst may have passed and they can generate attractive returns as valuations recover.

“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,” said Jack Gay, global head of debt at Nuveen.