- Fortress and Goldman Sachs are launching nontraded REITs to finance commercial real estate loans, targeting high-net-worth individuals as institutional lenders retreat.
- Nontraded REITs offer more flexibility and less regulatory scrutiny compared to publicly traded REITs, making them an attractive option for financing.
- Commercial real estate loan demand is expected to surge in 2024, driven by refinancing needs and anticipated interest rate cuts by the Federal Reserve.
According to Bloomberg, Fortress and Goldman Sachs (GS) are raising capital for new nontraded debt REITs that will finance commercial real estate debt.
Fortress, traditionally focused on institutional clients, has filed to launch the Fortress Credit Realty Income Trust, while Goldman targets a $1B raise for its REIT.
Both aim to fill a financing gap for high-net-worth individuals left by institutional lenders pulling back from the market.
Surging Loan Demand
Wall Street firms are preparing for a spike in demand for commercial real estate loans, driven by anticipated Federal Reserve interest rate cuts and developers refinancing billions in property debt.
The Mortgage Bankers Association estimates a 26% increase in commercial and multifamily mortgage borrowing, reaching $539B by the end of 2024.
Flexibility, Less Regulation
Nontraded REITs differ from publicly listed counterparts by offering semi-liquid shares that investors can cash out periodically at net asset value.
These REITs, marketed to wealthy individuals with net worths exceeding $1M, provide less regulatory scrutiny, giving managers more flexibility in how they operate.
Fortress and Goldman’s filings indicate a focus on senior-secured, floating-rate loans and investments in residential debt, including property tax liens and single-family rental loans.
A Growing Trend
Alternative asset managers like Blackstone have successfully tapped into private wealth through nontraded REITs. Fortress, having lagged in this space, is now catching up with its recent filings.
Other firms, such as Blue Owl Capital and Elliott Investment Management, are also moving into real estate lending, capitalizing on the void left by banks tightening their lending standards amid regulatory uncertainty.
