Real Estate Capital Markets 5/6
- Feb 21
- 2 min read
This post is part of a 'Did You Know?' series inspired by my book, 'Real Estate Capital Markets,' where I explore the four-quadrant framework, structures, trends, and opportunities shaping the U.S. real estate capital markets. In addition, I serve on the board of Agree Realty Corporation (a retail net lease REIT), teach real estate capital markets at NYU and Columbia, and consult on rating processes, expert witness work, and REIT structuring.
Did You Know?
The collapse of over 800 Savings & Loan (S&L) institutions in 1989 was more than a crisis; it was a turning point. The S&L crisis and resulting 'Financial Institutions Reform, Recovery, and Enforcement Act' (FIRREA) removed a significant source of capital for commercial property owners, creating a capital shortage. The resulting real estate recession paved the way for three major parallel developments in real estate capital markets that continue to shape the industry today:
1. Commercial Mortgage-Backed Securities (CMBS) – CMBS grew into a critical tool for providing debt capital to real estate owners and liquidity for lenders and investors. Issuance peaked at $230 billion in 2007, just before the Global Financial Crisis in 2008, and now averages closer to $100 billion annually, a level more aligned with market absorption. (YTD 2025: approximately $85 billion in issuance as of August with issuance up 37% vs. 2024).
2. REITs – While REITs were first authorized by Congress in1960 to allow individual investors to invest in diversified portfolios of income-producing real estate, the 1990s ushered in a surge of REIT IPOs. A little-known fact is that the REIT legislation was part of the 'Cigar Excise Tax Extension Act of 1960', which tucked in the REIT provisions to broaden investment opportunities. Beyond traditional multifamily, office, retail, industrial, and self-storage, we have seen the rise of data center and cell tower REITs, reflecting the changing nature of real estate demand. The market capitalization of REITs rose from $13 billion in 1991 to $1.4 trillion at YE2024.
3. Opportunity Funds – Private equity capitalized on discounted sales of mortgages and properties from the Resolution Trust Corporation (RTC). These funds flourished in the 1990s, setting the stage for modern opportunistic and value-add strategies that remain active today.
Together, these innovations provided new channels of capital, diversified risk, and expanded liquidity. They also demonstrate how a crisis often accelerates transformation, reshaping how debt and equity flow through the four quadrants of the U.S. real estate capital markets.
Link to 'Real Estate Capital Markets':
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