Mind the gap - lenders approaching

It's been years since investors were able to get excited about the term 'yield' when referencing their investment portfolio. Too many individuals have been hanging onto cash while searching fruitlessly for somewhere other than equities to put their money to work. Advisors haven't been much help in this effort either, often acknowledging that, unless and until something interesting presents itself, sidelining a pile of cash might not be the worst plan in prudent money management. Enter the interesting alternative...

However, there's a relatively new kid on the block who is shaking things up―private real estate debt lending. There are two main influencers on this burgeoning business: one, a lending gap created by banks exiting the middle market lending spacein the wake of the now infamous financial crisis. The crisis spawned by numerous bank capital regulations restrict this piece of the lending pie to such an extent as to make it unattractive to the banks. Two, the prolonged zero-interest rate environment with the Fed's thumb on global rate engines has also created a dearth of commercial mortgage-backed securities, historically a support pillar to the lending market, now shackled by its own growing regulation.

Back in February, Barrons covered this in "Bet Your Real Estate Dollars On Debt In 2016." The article offered this view:"The more restrictive regulatory environment for the large banks, as well as the wall of commercial real estate debt that is maturing over the coming years, have combined to create an attractive opportunity for non-bank finance companies with private real estate debt funds, which clearly stand to benefit from this confluence of factors," says Jim Burns, member and head of KKR's individual investor business.

In September, Preqin released its latest survey results that included some interesting findings about private debt. As one of the leading sources of information for th......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.