Real Estate Debt
An attractive risk/return profile from lending secured against physical assets
Return
Return potential lending against commercial real assets provides the potential for attractive levels of income
Significant opportunity
Structural decline of bank financing provides investors with opportunities across the risk spectrum from investment grade to high yield
Risk mitigation
Potential for downside protection provided by sponsor equity and robust loan structures secured on a real asset
What is real estate debt?
Banks are stepping away from real estate lending markets, creating a market supply and demand gap which will need to be filled by alternative lenders. These lenders have an opportunity to achieve attractive returns for investors by selecting transactions in a debt market that requires around €200bn of annual capital. Returns can be tailored to suit investors risk appetite and are mainly derived from income, with downside protection provided by lending against a physical asset.
An opportunity for UK institutional investors
We run three strategies spanning investment grade, senior loan and high yield in both the UK and Europe, offering you access to real estate debt at a risk point to suit your portfolios.
Each strategy provides the key benefits of real estate debt to UK institutional investors. These asset class offers relative value when compared to other public and private credit asset classes with a similar risk profile. It also offers provides stable cashflows from a contractual income streams and diversification from more traditional, liquid investments. And for insurance clients, there is the potential for improved capital efficiency and returns on capital under risk-based capital frameworks.
Experienced on the ground expertise
We have 11 offices and over 150 real estate professionals across Europe, who are experienced across all property types and loan styles and involved in origination, underwriting and both portfolio and asset management. The Real Estate Debt team is one of the best resourced in Europe and has broad team experience across all parts of the debt capital stack, in all property sectors and in core western European markets.
Clear, measurable impact metrics
The funds on our real estate debt platform have environmental and/or social characteristics that are classified as Article 8 of the EU Sustainable Finance Disclosure Regulation (SFDR). The team implements ESG analysis at each stage of the investment process, analysing both the borrower and the underlying real estate using a proprietary scorecard. This repeatable, reportable and robust ESG process drives our sustainable lending practice and provides clients with measurable data.
"The opportunity presented by the increasing need for alternative lenders puts investors in real estate debt in an advantageous position. With superior control and demand dynamics in favour of the investor, risk-adjusted returns are enticing, especially relative to conventionally-traded corporate bonds of similar credit quality."
Head of Real Estate Debt, Schroders Capital
Key Investment Risks
- While private assets investments offer potentially significant capital returns, funds and companies may face business and financial uncertainties. There can be no assurance that their use of the financing will be profitable to them or to any Fund. Investing in private asset funds and unlisted companies entails a higher risk than investing in companies listed on a recognised stock exchange or on other regulated markets. This is in particular because of the following major risk factors:
- The strategies invest primarily in real estate-related loans, the value of which could be impacted by factors affecting property assets securing the loan. Property assets are inherently difficult to value and are generally a matter of a valuer’s opinion.
- Borrowers may fail to make interest or principal payments on a loan. Defaults may adversely affect the income received and or the value of the fund.
- In the event of a borrower default, any security taken may not be sufficient to cover amounts due.
- The capital may be repaid by the borrower before reaching maturity which may affect the value of the fund.
- There is no recognised secondary market for interests in the fund and, as a result, reliable information about their value or the extent of the risks to which they are exposed may not be readily available.
- Changes in currency exchange rates may adversely affect the value of the investments or the borrowers’ ability to service their debts.
- Failures at service providers could lead to disruptions of fund operations or losses.
Past performance is no guarantee of future performance. The value of investments and the income from them can go down as well as up, and you (or your clients) might not get back what you originally invested.
For illustrative purposes only and does not constitute to any recommendations to invest in the above-mentioned security / sector / country.
Emerging markets tend to be riskier than developed markets: they're less stable politically, legally, and operationally. And exchange-rate changes can also make the value of any overseas investments rise or fall.