The stricter regulatory environment imposed on commercial banks and CMBS lenders over the past year has led to a sharp rise in alternate sources of commercial mortgage capital, giving rise to the question: Is this a short-term trade or will the growth of this segment be more permanent?

Opportunity funds and specialty lending firms that are now rushing into the sector historically have had short attention spans and have often been set up to respond to temporary market movements. The model is exemplified by the funds that bought loans liquidated by the Resolution Trust Corp. a quarter–century ago, which produced a successful outcome that vulture investors have been trying to replicate ever since.

The current increase in alternative commercial mortgage vehicles, however, may prove to be part of a long-term evolution in commercial real estate financing. Alternative lenders are responding to the strong demand for debt financing at a time when there is an influx of foreign