Private credit platforms push into larger loan originations

More private credit lenders are sourcing and executing on larger loans as regional banks scale back their lending platforms.

After the closures of Signature Bank, First Republic Bank and Pacific Western Bank, there is more hesitation from regional banks to originate commercial real estate loans because of the perception of risk.

Private credit platforms are stepping up their origination of large-scale loans in markets like New York City, stepping into situations that may have been funded by a regional or national bank a year ago.

An example of this is a pair of loans obtained by a partnership between Canyon Partners Real Estate, Charney Companies and Tavros for two separate multifamily properties in Brooklyn’s Gowanus submarket.

Two for the money

The trio in August tapped Charlotte-based Barings for a $119.9 million senior construction loan to develop a 260-unit multifamily property at 251 Douglass Street. But in January, the trio obtained financing from PacWest Bank to develop a similar property at 224-unit multifamily asset at 585 Union Street in Gowanus – just five minutes away from the Barings-funded development.

What changed in between the two loan closings was the quality and availability of lenders active in the financing market, market participants say.

Sam Charney, founder and principal at his namesake New York-based development company, says 10 potential lenders had initially been in talks to finance the 251 Douglass Street project. But five of those lenders dropped out this year from market deterioration, according to a report in The Wall Street Journal.

Banks are still active and accounted for the largest share of non-agency loan closings, with about 43.4 percent of originations in the second quarter of 2023 compared to 41 percent in the first quarter, per an August report from Dallas-based advisory CBRE. The firm also found private credit lenders including debt funds and mortgage real estate investment trusts accounted for 26 percent of second quarter loan closings, up from 20.1 percent in the first quarter.

“Liquidity and credit have not dried up ”

Josh Weingarten, Triangle Equities

This trend is also apparent in Real Estate Capital USA’s weekly Lending Barometer, which shows some of the most sizable multifamily financings have come from private credit lenders.

The bigger issue, however, is that while capital is available, it can be difficult to assemble, says Josh Weingarten, director of capital markets at Triangle Equities, a New York-based development company.

Even for an experienced, well-capitalized sponsor, pricing is higher and proceeds are lower on new loans, Weingarten says.

The firm last year obtained a package of loans totaling $317 million for Brick Church Station, a mixed-use, transit-oriented development in East Orange, New Jersey that includes an 820-unit apartment complex.

“We closed that first phase of financing in November 2022 and, looking back from the beginning of the summer 2022 to the end of year when we closed, the increase in interest rates over that period led to a decrease in the senior construction loan of nearly $30 million, which had to be filled with other sources,” Weingarten says. “We wouldn’t have been able to get that deal done today.”

Still, there are lenders active in the market. “I would say that most importantly, there remain active lenders who are still looking to do construction and bridge loans,” Weingarten says. “Liquidity and credit have not dried up.”