A rise in real estate debt fund deals is on the cards for 2021, as their share of the overall real estate fundraising market continues to grow.
Although debt funds are still only a small part of the real estate investment market, the global research team at PGIM Real Estate noted, their share of global real estate capital-raising has grown notably – to almost a fifth in 2020 from just 7% four years ago.
Investors’ growing appetite for such funds has risen due to their capital protection and cashflow resilience, the team added – and fixed-income investors hunting for yield have also pivoted to property debt funds for higher returns than they can find with investment-grade bonds.
“Origination volume dipped during 2020, reflecting a wider decline in equity transaction volume as well as caution among lenders, especially on the banking side,” PGIM Real Estate’s latest paper read.
“Origination volume is set to grow again in 2021, as lender sentiment improves with the wider economy, although activity will likely be hampered by ongoing Covid-19 restrictions in the first half of the year.”
A rise in debt fundraising underlines the growing diversity in the real estate lending market, and PGIM Real Estate expects a wider group of lenders to lift origination volume during the year. Non-bank lenders currently account for about 50% of the lending market in the US and almost 30% in the UK.
“Bank lenders continue to dominate in Asia-Pacific and continental Europe,” the team added, “but non-bank lenders are set to gain increasing market share over time.”
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