News about the global banking sector has not been so great lately.
Last month, five of the six biggest U.S. banks reported second-quarter losses, and four reported a drop in revenue. Large banks like J.P. Morgan and Citigroup are also subject to increased capital surcharge regulations that are expected to rise even further. And small U.S. banks have problems of their own, having been called out by the Office of the Comptroller of the Currency for being at risk of expanding their commercial real estate portfolio too much, too fast.
Outside the U.S., Italy’s banks are ailing. British banks, along with some big U.S. and European banks, are exposed to Brexit fallout. Two European banks ‒ Germany’s Deutsche Bank, a big U.S. CRE lender, and Spain-based Santander ‒ recently failed the U.S. Federal Reserve’s stress tests. And we have to consider the possible effects of last year’s economic crisis in China on Bank of China and other Chinese lenders.
It should go without saying that none of this rules out banks as commercial real estate lenders. Banks are, and will continue to be, prominent CRE players. But the banking-sector uncertainty leads us to think about what other types of lenders are out there and what they have been up to lately.
Non-bank lenders can include insurance companies, credit unions and foundations, as well as pension, private equity and hedge funds.
Insurance companies are the non-bank lenders most involved in refinancing securitized loans, according to a CrediFi* analysis of a sample of $8.25 billion in 2015-2016 financings of New York City commercial properties with loans that were at least partly securitized in SEC-registered conduit/fusion deals in 2005-2007.
Of that $8.25 billion, more than 80% was refinanced as balance-sheet loans or private securitization. While banks refinanced most of those loans, insurance companies such as Metropolitan Life Insurance Company, Prudential and American General Life Insurance come in at a clear but distant second, handling 12% of these refinancings.
Take 1675 Broadway in midtown Manhattan, a 35-story mixed-use Rudin Management building on Broadway and 52nd Street that was refinanced by MetLife last year. Tenants include media and advertising giants Starcom Mediavest and Publicis Groupe, which last year reportedly extended its lease until 2031 and added another 100,000 square feet to the 480,000 it already occupied.
In 2006 the property was financed by a $180 million loan originated by Prudential, $155 million of which was assigned to a CMBS deal. Last year, the loan exited the public CMBS universe (for now) when it was refinanced by MetLife, which issued a $254.6 million balance-sheet loan.
As for other non-bank CRE players, Blackstone is the world’s largest private equity investor in real estate,striking such massive deals last year as the $23 billion acquisition (with Wells Fargo) of most of GE Capital‘s real estate holdings, the $6 billion acquisition of the Strategic Hotels & Resorts hospitality portfolio, and the $5.3 billion purchase (with Ivanhoe Cambridge) of New York’s Stuyvesant Town-Peter Cooper Village. On the debt side, loans issued by Blackstone Mortgage Trust subsidiary Parlex 3 Finance this year include one for about $160 million in April, including construction financing, for an Atlas Capital Group building in Long Island City known as The Factory.
Built in the 1920s as a Macy’s furniture warehouse, the building at 30-30 47th Ave. has been converted for office use. But with new tenants including companies such as J.Crew’s Madewell brand, Polo Ralph Lauren and Macy’s itself (the latter two are reportedly using the building as a photo studio space), the former Queens warehouse hasn’t strayed far from its fashion roots.
In late July, Blackstone Mortgage Trust reported $859 million in loan originations in the second quarter, all of which were senior, floating-rate mortgage loans, and $1.8 billion of incremental financing capacity for new loans.
True, banks around the world are an integral component of the commercial real estate industry, and uncertainty in the banking sector can increase commercial real estate lending risk. At the same time, though, it’s worth remembering that non-bank CRE players such as private equity funds, insurance companies and pension funds can pick up some of the slack. Banks may supply much of the financing that makes commercial real estate go round, but they aren’t the only game in town.
*For a full list of all Battery investments and exits, please click here.
This post originally appeared in Forbes