Non-bank lenders capitalize on growing trend in financing for commercial real estate


Wednesday, March 6, 2019 | By Daniel Pallone

Non-bank lenders capitalize on growing trend in financing for commercial real estate

In the years between 2008 and 2016, commercial real estate values were increasing 5-15% per year. In this climate, investors seemed to favor equity investments to capture the real estate value appreciation of assets such as office buildings, retail space and senior care facilities. Since 2017, property appreciation has slowed.  As a result, there has been a significant strategy shift for commercial real estate investors from equity investments to financing commercial real estate loans.  We expect this trend to continue as real estate property appreciation remains relatively flat for the foreseeable future.

STEM businesses driving demand for more creative loan options

The strategy shift has created more demand for commercial property loans than the banks can handle, and a vibrant opportunity for non-bank lenders, such as private equity, hedge funds, insurance companies, family offices and REITs.  Non-bank lenders have many options to leverage the assets on their balance sheets.  They also have more flexibility in their loan offerings than highly-regulated commercial banks.  Further driving this trend is the rapid expansion of what the real estate industry is now calling “STEM” businesses (Science, Technology, Engineering, Medicine). Non-bank lenders can offer these businesses more competitive rates, bespoke terms with fewer covenants, and faster closings because they are not burdened with the time-consuming and costly regulatory capital and reporting requirements of a bank.

No free ride for non-bank lenders

Although non-bank lenders are less encumbered by regulatory requirements than banks, entering the balance-sheet lending business is not without additional administrative costs. Having the ability to be more creative in their loan offerings and the ability to execute them are not separate issues. The non-bank lender now requires a commercial loan servicing solution with the flexibility to execute a wide variety of loan options and terms.  Without a commercial-grade solution, the advantage is in concept only. In addition, to the extent these non-bank lenders are also fund managers, the loan servicing solution will have to be integrated with the fund administration solution in order to maximize operational efficiency. If the fund is working with two different vendors, the process can be less than seamless and highly unscalable.

SS&C is the world’s leading fund administrator. SS&C also offers Precision LM, the lending industry’s most versatile commercial loan origination, servicing, accounting and asset management system. Whether lenders choose to deploy Precision LM as a hosted solution or as an outsourced service, SS&C can provide seamless integration with its fund administration platform. This integration of class-leading technology and high-touch service delivery offers non-bank lenders the agility to provide faster, more creative loan offerings while meeting all the loan and fund accounting, compliance, and reporting requirements borrowers and investors demand.  The result can be a significant advantage in this increasingly competitive commercial lending market.



Fund Administration, Real Estate & Property Management