Real Estate Debt Financing

Real estate debt finance provides an attractive option for investors to take advantage of risk adjusted returns via loans secured against underlying commercial real estate holdings.

Real estate debt loans on average, are often comparable to the premium of similarly rated corporate debt. It’s an attractive option for this and a whole host of other features but most specifically because of their illiquid nature and increased downside protection.*

Real estate debt financing allows investors exclusive access to the commercial real estate financing through loans made across the capital structure.

Types of Real Estate Financing:

  • Senior
  • Mezzanine
  • Whole Loans
Often these loans are attractive to investors in that lenders are more apt to loan since debt is secured against hard assets. With the interest derived through rental income and generated by the underlying properties, it also offers more access to liquidity for the borrower. These types of loans offer the lender added assurance in the case of default that the financier has the security of the underlying commercial properties to repay the debt.

Real Estate Debt – Why It’s an Attractive Option

Since recent regulatory and market changes have changed the real estate universe in terms of risk versus return, and with loan-to-value ratios skewing lower than in past, pre-financial crisis years, it’s created an opening for investors, namely a lucrative way around some the downturns by acquiring real estate debt investments.

The Advantages:

  • Attractive growth/risk as compared to corporate bonds
  • A high ratio of income return
  • Flexibility to allocate significant capital
  • Security backed by hard underlying assets
  • Lowered risk via stringent underwriting standards
  • More buffers against property value volatility
Investors also find the landscape wide open under the current climate condition since European commercial real estate debt is expected to need significant refinancing over several years which offers a myriad of investment opportunities in the sector for non-traditional lenders.

*The value of investments will fluctuate, which will cause prices to fall and rise. Investors may not get back the original amount invested. Where past performance is referenced, please note, it is not a predictive guide of future performance.


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