In a low-return environment, these existing equity providers are bringing out large, value-add funds to increase
“The groups that are responsible for the bulk of the
equity capital, such as pension funds and other fund
investors, have continued to consolidate the number of
managers,” Fried says. “Those managers continue to
get bigger. While we see more money flow into the
equity side of the business, the number of equity chan-
nels hasn’t really increased dramatically.”
Ryan M. Haase, director of capital markets for Franklin
Street, says there were once dozens of new capital provid-
ers entering the market.
“Lately, we have seen that trend falling off, but we
have seen many current providers expanding into alternative products to find yield or increase production,” he
BRIDGING THE GAP
In fact, equity providers on the hunt for increased yield
have been flocking to the bridge lending space. “We’ve
seen more equity players convert to debt players,” Sansosti
says. “They believe that the yield on a piece of debt is
more attractive than the yield on equity.”
These groups aren’t limited to a few structures; they
are offering a wide array of products. “These funds are
doing bridge, mezzanine or preferred equity structures.
Some are originating whole loans and selling the A piece,
retaining what is essentially a manufactured B piece,”
Stoffers says. “Those are all different ways that these
funds are investing.”
However, it is not just equity players moving into the
bridge lending space. “Those people [coming into the
bridge space] really cover the gambit, including a num-
ber of insurance companies that have gone out and
raised funds that are now in the bridge lending space,”
Fried has observed an ever-increasing list of “money
flowing into the markets, looking for some way to attach
itself to real estate in a debt-type framework” from a
number of sources. “You just see that debt providers
continue to innovate to try to find that investment,” he
says. “Traditional senior lending is giving away to an
ever-growing group of quality [mezzanine debt].”
These funds have reduced the need for equity.
“Because underlying interest rates are low, the amount
of liquidity and the mezzanine preferred equity space is
plentiful,” Sansosti says. “That has driven down the
yields on debt and reduced the need for pure joint-venture equity.”
CAPITAL LINES UP FOR
Even with Freddie Mac and Fannie Mae in the picture, affordability is a
worsening problem in the US.
While in its early stages, money is lining up to try to address the issue.
“We’re definitely seeing many more targeted, socially conscious funds
that aren’t your traditional big “A” affordable in the past,” Provinse says.
“It’s not just tax credit or Section 8 kind of subsidized deals, but these
funds are targeting more of a workforce housing component.”
Greystone is now a participant in the affordable space, having bought
America First Multifamily Investors, or ATAX, in August. ATAX provides
real estate developers with construction and permanent financing of
affordable, student and senior housing properties through the direct
purchase of tax-exempt and taxable bonds. Its Greystone Affordable
Development group is a development and transaction management
group focused on meeting the challenges associated with the recapital-
ization, rehabilitation and preservation of affordable housing.
Beyond his firm’s work, Fried predicts even more capital providers
will target affordable housing in the future, as firms become increasingly
comfortable with affordable housing.
“This was a fairly small community of capital participants a number
of years ago,” he says. “That clearly has broadened and it has broad-
ened for the same reason that debt and equity appetites have expanded
on a whole host of asset classes. It is money looking for a reasonable
place to park itself where it can get some kind of decent return for the
These funds often have longer hold times, which can hedge their
risks. “While they have lower yields, they’re saying they have much less
volatility and downside risks,” Provinse says.