A real estate investment firm has closed a debt fund focused on multifamily lending with more than $1 billion in commitments at a time when traditional banks have pulled back from financing.
Canyon Partners finalized fundraising for its US Real Estate Debt Fund III after amassing $1.2 billion. The fund is Canyon’s largest domestic real estate debt fund to date and nearly doubles the $650 million in commitments raised by its predecessor.
The fund’s closing coincides with increased apartment competition during a generational peak of new unit openings while a flood of loans come due, putting a damper on the market. As a result, many owners are seeking short-term capital to fund operations while they work to fill units and generate cash flow.
"In today's evolving economic landscape, including a higher-for-longer interest rate environment, we see significant opportunities to provide flexible capital solutions to borrowers,” Robin Potts, partner and chief investment officer at Canyon, said in a statement. “We believe we are witnessing a generational opportunity for real estate debt investing.”
According to financing firm BlackRock, the size of the global private debt market is estimated at $1.5 trillion to $2.1 trillion, and it could grow to as much as $3.5 trillion by 2028. Within the multifamily sector, data from Newmark shows debt funds accounted for 17% of loan originations through October of this year, an all-time high and more than double the share during the same period in 2019.
“The opportunity for debt funds will only increase as many multifamily owners whose originated loans from ’21 and ’22 loans are coming due will need higher loan amounts relative to current valuations, and more flexibility in structure,” David Scherer, co-chief executive of Origin Investments, said this month in a 2025 apartment investment outlook.
Refinance deadlines
According to private equity firm KKR, more than $250 billion in multifamily loan debt is expected to mature in 2024. Some owners who purchased properties in 2021 and 2022 are facing a deadline to refinance those properties that are now worth less than their purchase price and at significantly higher interest rates. At the same time, a number of traditional banks find themselves overexposed to real estate lending and are subject to new capital requirements, making them unlikely to extend new loans.
At Greystar, the largest apartment owner in the United States, executives also see an opportunity to capitalize on short-term loans to developers opening projects amid a 40-year high in new unit openings.
“The sweet spot today exists in transition financing,” Kevin Kaberna, an executive director at Greystar, said in a report from data firm Preqin. “A large percentage of these opportunities are in lending to developers that are trying to lease up and are carrying high-cost construction financing.”
Greystar has launched its own credit business targeting owners looking to acquire, develop, refinance and renovate multifamily projects as apartment demand — supported by wage and job growth, positive household formation, and the significant cost of homeownership relative to renting — promises to quickly take up the existing supply and construction pipelines contract.
Canyon’s third debt fund has attracted a global set of investors stretching as far as Asia, the Middle East, Europe and South America. The firm said it had already deployed 44% of the fund’s capital toward opportunistic investments as it looks to take advantage of the demographic and fundamental changes in multifamily that could turn property values around.
Canyon manages $4 billion in assets. The firm is the direct real estate investing arm of Canyon Partners, a global alternative asset manager with more than $26 billion in assets under management.