U.S. real estate debt funds are poised to bring in the lowest amount of new annual investment capital over the past seven years, according to CoStar data. After eight months of 2023, debt funds took in only $1.1 billion.
Last year, funds reported a total haul of $6 billion, an amount still far less than the $27.3 billion that flooded the market in 2020 when the pandemic was expected to create a surge for financing.
Much of the excess capital raised in 2020 and 2021 is still available for deployment, with more than $15 billion of so-called dry powder on hand from those years.
In real estate, developers tap debt funds when they need short-term capital for a building project. Property sales are down significantly in 2023, which is a big reason there has not been much need for debt funds, according to an S&P Global report.
Debt fund loan originations collapsed 73% year over year, according to a separate report from Newmark. The funds’ share of total lending pulled back across property sectors, most notably for office.