Monday Market Minute | Mar 29, 2021

Developer demand for private credit reaches a fever pitch

What Moved

Private credit demand from Canadian real estate developers reached its highest level in over a decade. The combination of surging land costs, escalating construction expenses, and constrained bank lending created a funnel effect that drove borrowers toward non-bank lenders and MICs. Bridging Finance, Romspen, and Trez Capital all reported record origination pipelines. Deal sizes were growing, and the competition among lenders to win mandates intensified, with some market participants noting spread compression on construction and bridge loans.

Why It Matters

Abundant deal flow is generally positive for private credit investors — more origination means more yield-generating assets. But the late-cycle dynamics were concerning. When every lender has a full pipeline, the marginal deal tends to be lower quality. Spread compression meant investors were being paid less to take risk at the exact moment when construction cost overruns and project delays were becoming more common.

Signal to Watch

The performance of early-2021 vintage loans over the next 12-18 months would reveal whether underwriting standards held. Any uptick in loan modifications, extended maturities, or additional draw requests would be the first signs of stress.

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