Financial Giants Forming Debt REITs Backed By Wealthy Investors

Three large financial institutions are gearing up for a wave of loan demand by forming nontraded debt REITs.

Fortress Investment Group, Goldman Sachs and Principal Financial Group are all raising money from wealthy individual investors to target a growing supply-and-demand imbalance in real estate debt funding as banks have pulled back.  

Fortress Investment Group filed plans earlier this month for a nontraded, perpetual-life real estate investment trust called The Fortress Credit Realty Income Trust, Bloomberg reported. It is set up to finance multifamily, hospitality and industrial properties.

It comes after Goldman Sachs and Principal Financial Group filed regulatory documents to create the same types of REIT in July. Those REITs are set up to focus on senior-secured and subordinated loans on commercial properties.

Goldman expects to raise up to $1B. Its filing says it intends to invest across markets and asset classes, including multifamily, industrial, student housing, seniors housing, hospitality and retail. 

Principal’s filing says it is poised to invest primarily in the U.S. in asset types including multifamily, industrial, student housing, self-storage, life science and data centers.

Many banks, especially regional banks that have had high proportions of commercial real estate loans on their books, have pulled back from CRE lending over the past two years, making space for alternative lenders to fill the void.

That trend is showing no signs of slowing down. Banks accounted for 30% of the lending volume in the second quarter of the year, according to CBRE, compared to 43% a year prior. Alternative lenders’ trajectory, however, went the opposite way, with a 33% market share during Q2, up from 26% the year before.