Commercial mREITs See Lending Opportunity as CRE Loan Volumes Soar and Banks Reach Limits

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Latest REIT Entering the Mortgage Arena Backed by Government of Singapore Investment Corp.

The Government of Singapore Investment Corp. is getting ready to jump into the U.S. non-bank lending sector. Through its GIC Real Estate Private Ltd., it has agreed to pump $150 million into a new REIT being formed by LoanCore Capital, an affiliate of the Jeffries global investment banking group.

The REIT, LoanCore Realty Trust Inc., is planning an initial public offering to raise another $345 million.

The forthcoming IPO and backing by a major international CRE investor is the latest sign of the increasing role of commercial mortgage REITs (mREITs) are playing in the overallcommercial real estate lending market, according to Fitch Ratings. With between $350 billion and $400 billion of CRE loans maturing annually in 2016 and 2017, Fitch is expecting commercial mREITs to become more significant competitors to banks in meeting the growing demand from CRE borrowers.

As ‘pure-play’ CRE debt investors, commercial mREITs predominantly originate commercial mortgage loans to hold on their balance sheets, originate conduit loans for securitization sales and invest in CMBS.

They are also subject to less oversight than banks, and Fitch believes there is a strong possibility that mREITs will fill a void left by large U.S. banks, which have pulled back from the more volatile segments of CRE lending, such as construction, acquisition and land development and growing their overall CRE lending volumes close to their limits. After struggling to pass so-called ‘stress tests,’ many banks remain mindful of the impact volatile CRE loan segments had on their loan portfolios during the financial crisis, according to Fitch.

The commercial mREIT sector is currently comprised of 13 companies, including Blackstone Mortgage Trust Inc., which this past month became a lot larger after completing the acquisition of substantially all of the GE Capital Real Estate mortgage loan portfolio of some $4.8 billion of loans.

Collectively, these firms had $32.2 billion in total assets as of March 31, 2015, up 52% from year-end 2010, or about 9% on a compounded annual growth basis. These assets vary widely from firm to firm and may include CMBS, commercial mortgage loans, distressed commercial mortgage loans, mezzanine loans and development land.

If launched as planned, LoanCore Realty Trust will add another $3.2 billion in assets under management to the group figure. The real estate finance company was formed in 2008 to originate and manage commercial mortgage loans and other commercial real estate-related investments. Through March 31, 2015, LoanCore has originated or acquired 421 commercial mortgage loans and other commercial real estate-related assets.

Its existing portfolio consists of nine commercial mortgage loans and four senior participation interests in commercial mortgage loans with an outstanding principal balance of $459.7 million, 60.7% of which were secured or, in the case of the senior participation interests, otherwise supported by real estate located in California and New York. By Mark Heschmeyer July 8, 2015



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