Balbec Capital Management seeks broad exposure to commercial real estate (CRE) debt, originating bridge and construction loans and investing in commercial mortgage-backed securities (CMBS) and distressed debt sold by banks, debt funds and real estate investment trusts (REIT).
“We find being involved in CRE debt from multiple angles gives us a keen sense of relative value. When one sector’s valuation is overpriced, we can rotate to one of the others,” said Marcello Cricco-Lizza, head of CRE lending at Balbec.
Balbec was launched in 2010 and has specialized in issuing residential mortgage-backed securities (RMBS). It branched into CRE investing in May 2020 when it brought onboard Cricco-Lizza to head the effort. He was previously a portfolio manager at BlueCrest Capital Management for two years and before that a mortgage-securities trader at Goldman Sachs. Balbec, which has deployed more $35 billion in assets globally since its founding, priced its inaugural CRE collateralized loan obligation (CLO) in March.
Cricco-Lizza recently spoke to Asset Securitization Report (ASR) about where he sees opportunities in the CRE structured-product markets.
ASR: What prompted Balbec’s shift to CRE?
Cricco-Lizza: It was a natural outgrowth of our RMBS business, to build into larger 10-, 50-, even 200-unit multifamily properties. The team at Balbec is made up of mortgage experts through and through, and understands the product structure, financing and warehousing. Plus, there are a lot of synergies between the CRE and residential sides of the business. We can share data, service providers, various APIs we use, etc.
Being involved in CRE debt from multiple angles gives us a keen sense of relative value.
ASR: When did Balbec make its first CRE investment?
Cricco-Lizza: Less than a week after I started. At the time, there was a major dislocation in CMBS [stemming from the Covid pandemic] and we saw an opportunity to take advantage of it, with hospitality bonds down 40 or 50 points. When some of those positions normalized, we started to see loan sales from banks. As the market grew out of Covid, purchasing broadly marketed loans became less interesting than originating our own.
ASR: Why did Balbec choose to issue in the CRE CLO market?
Cricco-Lizza: The sector has seen strong growth, with multiple first-time issuers this year. We’ve seen lower supply and demand in the conduit [CMBS] market, and private-label investor demand has firmly been in the CRE CLO sector.
ASR: Why is that?
Cricco-Lizza: I think a mix of more favorable incentive structure and [fewer] historical losses. Over the past few years, CRE CLO transactions haven’t had much in the way of losses compared to considerable losses projected for various conduit [CMBS] transactions. And investors like the [CLO] incentives structure, with the originator of all the loans owning the BB, B, unrated and income slices of the CRE CLO, compared to conduit transactions.
ASR: Multifamily loans dominated your CRE CLO (PRPM 2026-CRE1), initially 68.4%. What makes them attractive today?
Cricco-Lizza: A few things. As mortgage rates have increased, the stabilized debt yield that government agencies require for permanent financing has been increasing and is now at 8% or 8.25%, compared to 7% or 7.25% earlier this year. So we’ve seen underwriting standards shift, and there are opportunities to resize transactions to make them work with today’s agency takeout rates. In addition, there’s a lot of demand for floating-rate product, given the upward-sloping yield curve and geopolitical factors, so we’re seeing a lot of deal flow. All of this creates an opportunity for multifamily lending, with more spread, more fees and maybe some additional structure, while properties are stabilizing with a slightly higher debt yield that make them work with today’s agency guidelines.
ASR: The remainder of PRPM 2026-CRE1 was in hotel properties. What is attractive about that sector?
Cricco-Lizza: Many market participants were predicting relatively unchanged or modest growth in RevPARs (revenue per available room). But across the country we’ve seen a significant increase compared to 2025, in the very high single-digit percentages, and it’s been fairly broad-based, from economy to luxury. They have had to deal, however, with inflation on the expense side and some pressure from the brands about overdue property improvements. So it’s very much an investor’s market.
We’ve seen underwriting standards shift, and there are opportunities to resize transactions to make them work with today’s agency takeout rates.
ASR: In terms of CMBS, why does Balbec focus on single asset, single borrower (SASB) rather than conduit transactions?
Cricco-Lizza: We don’t like the correlation profile [of conduit CMBS], some of the outcomes from a special servicer perspective, or the incentive structures. We find that a lot of bridge loans end up getting taken out by conduit loans that tend to be cashouts for the borrowers, who then, magically, are no longer as focused [on the property]. Conduit is a place to be cautious, and we’ve completely avoided it.
ASR: Don’t the many loans in a conduit securitization offer diversification?
Cricco-Lizza: That’s true at the AAA level, but in a BBB slice there’s so little credit enhancement for those bonds that you kind of need everything to go right.
ASR: Why the preference for SASB?
Cricco-Lizza: We’ve done quite a bit of investing in SASB, and part of that is the correlation profile. I would tell someone who buys a conduit B-piece today and expects to get a 15% to 20% return and no loss that, well, losses are coming. You would be hard pressed to find conduit vintages that have been spared losses. In a world where you have a lot of dispersion in property performance, you don’t want to be in that long-correlation, conduit credit profile. If you have varying fortunes in a SASB hotel deal and a few hotels are not performing well, the sponsor can sell those properties to local operators and de-lever the transaction. The majority of SASB, multi-asset transactions, where there’s a portfolio of hotels, have seen some manner of hotel sales, and that’s a positive we love to see.
ASR: What other sectors are you looking at?
Cricco-Lizza: We are definitely still seeing opportunities in data centers. We’re less focused on the speculative risk there, such as construction, and more on properties that have secured power and fairly granular rent rolls; we have a lot of interest in the co-location side of the data center space. It’s the area where you arguably have the best look-through to net cash flow growth and the tightest limitations on supply. I think the market may be underestimating the degree to which some of the not-in-my-back-yard (Nimby) opposition and power constraints are stopping even some of the planned supply from coming online. It’s probably the part of CRE where you could reasonably have, based on all the fundamentals, the highest conviction around rent growth, which will de-lever these transactions and position them to be refinanced in the next two to four years.
