EXECUTIVE SUMMARY
The financing gap created by the investment and construction activity of 2021 and 2022 remains structural and unresolved. Bridge and transitional lending are uniquely positioned to address that gap, and the historical return record suggests it is among the most compelling risk-adjusted opportunities available to institutional investors today.
- The leverage shortfall persists. Approximately $719 billion in CRE transactions closed at sub-4% cap rates in 2021 and 2022, nearly double the prior decade combined, alongside record construction starts in multifamily and industrial. The rapid increase in interest rates fundamentally altered the refinancing economics of these deals. Improving liquidity changes the cost of senior debt at the margin; it does not close the gap in capital stacks that were built for a different interest rate and capital markets environment.
- An attractive forward-looking origination environment. Valuations are down approximately 20% from 2021-2022 peak levels, providing meaningful equity cushions at origination. New supply deliveries are projected to decline 65-75% in multifamily and industrial over the next two years, and history suggests that modern, high-quality assets in these sectors consistently outperform in the early stages of real estate recoveries.
- Strong historical performance. Since 2012, bridge and transitional loans have outperformed other CRE debt and fixed income indices on both an absolute and risk-adjusted basis. For insurance general accounts managing against liability-driven constraints, the combination of equity-adjacent yields, fixed-income-like volatility, favorable RBC capital treatment, and near-zero correlation to corporate bonds makes this an increasingly important allocation.
