Interest rate spreads are widening, which is having an effect on the real estate debt investment environment.

“Many of the debt funds that rely on securitization to manage the size of their balance sheet have encountered an unfriendly CRE CLO market,” says Paul Mullaney, managing director of commercial real estate for CarVal Investors. “This is causing them to reconsider their financing options. Many of the lenders that provide warehouse financing to those loan originators have topped out on their capacity to fund. There is a fair amount of inertia in the market.”

In the current lending market, nonbank lenders, such as real estate debt investment funds, are typically providing capital for the more risky part of commercial real estate lending, while, for the most part, banks and insurance companies lend at lower advance rates on stable assets at lower spreads, according to Mullaney. He adds, “The nonbank lenders are providing the capital for CRE assets that ar