A Candid Conversation About CRE Debt Funds


Will McIntosh
Global Head of Research

John Kirk
Senior Director, Research

January 2019

The amount of capital flowing to commercial real estate (CRE) debt fund s has risen significantly in recent years. According to Preqin, these funds had $57 billion in dry powder on hand as of the third quarter of 2018, an all-time high. In fact, approximately 20% of all CRE dry powder held by funds today falls within the debt space, nearly double the amount from a decade ago. Mounting evidence suggests that the number of active managers has escalated substantially as well. Commercial Mortgage Alert's 2018 annual survey identified 120 firms (up from 90 the previous year) actively investing in high-yield debt on commercial properties, which is a common strategy for debt funds. Indeed, institutional investors have gravitated to the CRE debt space in record numbers, attracted by the current market opportunity. However, investors are also, understandably, reassessing the market today, given the record levels of dry powder on hand, an increasing number of firms vying for business, and a waning economic outlook. The following discussion provides a research perspective regarding current investment conditions and the market outlook ahead.