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A trend toward capital source convergence in commercial real estate finance should give corporate executives a high level of comfort that debt financing could be available to them should they choose to seek it.

Traditional sources of debt financing, including major diversified financial companies, haven't abandoned the commercial property market — they remain very active and eager to lend. What's changed is that today diversified financial companies, traditional banks, debt funds, mortgage-banking firms and technology platforms all compete for slices of the debt financing pie.

Some diversified companies have bought into debt funds, mortgage-banking firms and technology platforms. According to, these investments along with mergers, acquisitions and other arrangements have blurred the once-sharp boundaries, or "swimming lanes," between debt financing sources.

The U.S. Is Still Attractive to Foreign Capital

Institutional investors seeking higher yields have made the debt financing marketplace more competitive, while capital source convergence has only fueled this trend toward stiffer competition.

Some of the new capital comes from foreign investors, with Asia being a major hot spot. While interest rates have been low in the U.S., they've been even lower or negative in foreign countries. That imbalance impels foreign investors to favor U.S. markets. Strong real estate fundamentals and a stable political system add to the U.S.'s allure.

"The global search for yield has led to the U.S. debt market," said Mark Williams, managing director for Eastdil Secured, during a recent panel discussion.

Converging, Emerging, Merging

Investment banks and life insurance companies are among the most active participants in the commercial real estate debt financing market.

"The global financial crisis changed everything, and we're all diving in to fill the gap," said Jeff Friedman, a co-founder of Mesa West Capital, during the panel discussion. Mesa West originated more than 250 loans worth $12 billion since 2004, according to Commercial Real Estate Direct.

Interest Rate Implications

Rising rates in the U.S. will affect commercial property markets. "Quantitative easing has driven down cap rates. When you raise the long-term borrowing rate, it will affect cap rate — it's got to," Williams said.

According to KeyBank Real Estate Capital EVP Daniel J. Baker, higher rates shouldn't hurt commercial property transactions as long as the rises are gradual. "Volatility kills transactions and sales," Baker stated.

Traditional banks offer competitive pricing for commercial property acquisition and debt restructuring without compromising loan quality. Additionally, banks enjoy a lower cost of capital than some newer entrants into the market, Commercial Observer reported.

The bottom line is that foreign investment, relatively stable U.S. rates and capital source convergence mean that there's no shortage of debt financing choices for commercial real estate transactions.

To discuss all the insights you need to know regarding this topic contact Todd Goulet, SVP KeyBank Commercial Mortgage Production, at