Real estate debt broadens appeal with investors

In more volatile markets where investors may not have the data points to invest in equity, debt provides an alternative at a lower risk point and with more downside protection, Brindley says.

As banks focus on the impact on rising base rates and incumbent sponsors, opportunities are emerging, particularly for non-bank lenders who can take higher risks, to tap demand for development financing.

“For sponsors that can’t meet the traditional metrics required to secure commercial bank financing or are seeking flexibility on covenants, borrowers are pivoting to the range of non-bank lenders that can provide such accommodations,” says Matthew Duncan, Head of Debt Advisory, Australia, JLL. “Lenders’ flexibility around interest servicing covenants can be a very valuable protection.”

Debt strategies are also typically broader and non-sector specific, which makes it easier for investors to respond to the market opportunity and to pivot between different sectors where opportunities arise, Duncan adds.

Deals closed by JLL, for instance, range widely from ground-up development to permanent financing for performing asset classes such as logistics and recovering asset classes like hotels.