Since the global financial crisis, there has been a significant change to the risk and return available in real estate debt, with loan to value ratios (the percentage of property value being offered) considerably lower whilst the margins on offer have increased dramatically. We believe this has created a very attractive backdrop for investors to gain exposure to the asset class.
In addition, investment in real estate debt offers the following advantages for investors:
- Attractive spreads over corporate bonds of similar credit risk
- A high proportion of current income return
- The capacity to make significant capital allocations
- Security against physical underlying assets
- Defensive characteristics via high underwriting standards and tailored financial covenants
- Significant downside protection against potential falls in property values when compared to investing in direct property
Around €500bn of European commercial real estate debt is expected to need refinancing over the next three years, presenting significant investment opportunities in the sector for non-traditional lenders.
Source: CBRE European Commercial Real Estate Finance 2017 Update.