The credit crunch that has plagued the real estate industry over the past 18 months appears to be easing.

Traditional lending sources such as commercial banks are returning to the marketplace and alternative methods of financing are becoming more available to real estate entrepreneurs.

“The real estate financing spigot has been turned back on, with money more available for well-thought-out, well-planned projects,” says P. Sheridan “Schecky” Schechner, managing director, Americas cohead, real estate investment banking at Barclays Capital.  “Although there are still some areas of concern, the market has bounced back. Many of the major commercial banks have become very active in the lending arena.”

Schechner, a ULI trustee and vice chair of one of the Institute’s Commercial & Retail Councils, notes that banks have been especially aggressive, particularly when it comes to multifamily real estate loans. “We expect to see a lot more activity over the next 120 days or so,” he adds. “Banks and investors are looking for yield; a number of insurance companies are coming in with mezzanine financing, too.”

Andrew R. Friedman, chairman of ULI’s Industrial & Office Park Development Council and managing director of the Capital Transactions Group at San Francisco–based Shorenstein Properties LLC—one of the country’s oldest real estate organizations—adds that liquidity in the debt capital markets has strengthened faster than anybody had originally anticipated, thanks to a recovery in the broader real estate market. Now, he says, a number of banks and investment firms are looking to place debt capital in real estate.

“A variety of sources that were quiet 18 months ago—life companies, overseas banks, investment banks—are all back in the market along with new funding sources as well,” says Friedman. “Right now, there are more local and foreign nontraditional capital sources turning up to provide debt in the marketplace. These companies are pursuing real estate deals that are a little tougher to get financed—for properties that have some challenges—and the money they provide is typically more expensive than [that provided by] traditional lending sources.”

The real estate finance picture clearly is improving, agrees Stephen R. Blank, senior fellow of finance at ULI. “The last time most owners looked, the real estate financing glass was empty,” he continues. “Now it’s getting half full. Earnings at banks are finally strong enough that they can get back into the business of lending, although they are [now] much more cautious and very conservative.”

Insurance companies also are becoming more active in the real estate finance market, Blank adds. “But, insurance companies are like aircraft carriers and can’t change direction quickly and just start lending more. And in and of themselves, they can’t fulfill all of the market’s needs,” he says. “They tend to do the larger deals involving prime property.”

Blank says he is surprised that pension funds haven’t entered the real estate market more forcefully. “I thought you’d see some pension funds go to someone like a Prudential or a MetLife and say, ‘Put together a $1 billion fund. We’ll put up $750 million and you put up $250 million, and we’ll make mortgage loans on top income-producing properties in tier I markets,’ ” he says. “It hasn’t happened yet, but it would make sense.”