Commercial Investment Real Estate January/February 2018

MARKET FOR ECAST Rising to the Top The reasons private equity real estate funds are trending upward. by Brian Ward T 10 January | February 2018 yields. In the late 1990s, it was tech stocks, particularly through IPOs. Prior to the Great Recession, it was real estate, mortgages, commercial mortgage-backed securities, and derivatives. But the rise of debt funds is a longer-term trend that has been building steadily as commercial real estate capital shifts from banks and securitized vehicles to nonsecuritized, effec- tively nonregulated, or rather market-only regulated, forms of liquidity. The absence of Lehman Brothers, Bear Stearns, and the true investment banks of the past is helping to drive this increase in private equity coffers. Regulated cash requirements have largely persuaded traditional banks to stay in their lane and leave alterna- tive assets to the other guys. Alternative Investments Private equity fund managers are investing the cash those invest- ment banks would have deployed in alternative investment COMMERCIAL INVESTMENT REAL ESTATE he commercial real estate industry is experiencing strong growth in debt funds and a boom among private equity firms. Within the past year, multiple new real estate debt funds have either closed or still are raising billions of dollars. The four largest publicly traded private equity firms — Blackstone, KKR & Co. L.P., the Carlyle Group, and Apollo Global Management — are reporting their biggest quarterly increase in assets since the third quarter of 2013. The four firms now manage $921 billion in assets — up 6.5 percent from second quarter 2017. These trends affect the securitization market by allowing a larger spectrum of investors with access to an asset class that requires a long-term commitment, but that generally offers lower volatility, higher risk-adjusted returns, and protection from inflation. A large group of investors always chases the next big asset class or the next quick, easy return, with the expectation of higher

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