Convergence Underway Across Public, Private Markets
Investors have historically accessed CRE credit exposure through either private lending or public market vehicles such as commercial mortgage-backed securities (CMBS). Increasingly, private and public channels are converging, creating a more flexible and dynamic investment landscape.
In private markets, investors can originate or provide capital directly to borrowers, often capturing a premium for sourcing, loan structuring and illiquidity. These investments typically offer structural features and attractive income profiles that may reduce mark-to-market volatility.
Public markets can present compelling opportunities during periods of dislocation. As we see it, recent volatility has been driven more by macro uncertainty than by deteriorating fundamentals. That disruption could create attractive entry points for investors.
Single Asset Single Borrower: Best of Bold Worlds?
Positioned between public and private segments is the growing single asset single borrower (SASB) market, where transactions have elements of both public and private investment, including:
- Access to institutional assets, either individually or through a diversified portfolio
- Simpler loan structures than the more tailored structures in private markets
- Liquidity and price transparency associated with public securitized markets
With the potential to combine asset-level underwriting discipline with market-based liquidity, we think SASB deals broaden investors’ toolkits.
Rather than viewing public and private markets as siloes, portfolios can allocate dynamically based on relative value. This may mean emphasizing private lending when spreads are lower and leaning into public markets when volatility creates price dislocations. With SASB structures, meanwhile, investors can access high-quality assets with attractive structures and liquidity.
A Diverse Opportunity Set
Commercial real estate isn’t monolithic, and it’s not defined by the office sector alone. It’s a diverse asset class that spans public and private markets, offering exposure to income-generating physical assets with conservative capital structures that may enhance risk-mitigation potential.
For investors, we think the commercial real estate market adds up to a compelling set of opportunities. Periods of uncertainty can obscure these dynamics. But these are often the moments when relative-value dynamics are most attractive.
