Advantages for institutional investors
For institutional investors such as insurance companies and pension funds, real estate debt comes with fundamental regulatory advantages. The European Solvency II directive demands consistently lower equity capital requirements for investments in commercial real estate debt than for equity investments.
BENEFITS OF REAL ESTATE DEBT AS AN ASSET CLASS
Investments in real estate debt are an attractive investment alternative for institutional investors, since debts secured by real estate offer an attractive risk-return ratio – also in times of low interest rates.
Furthermore, for those investors who act as debt capital provider, the equity capital supplied by the borrower acts as a buffer for fluctuations in the real estate markets. This makes it possible not only only to loans to be backed as security, but also to further reduce risk compared to traditional equity capital investments.
The demand for real estate loans among debt funds has proved to be notably robust throughout different phases of economic development. Debt funds complement the offering of real estate financing where is the transaction is particularly complex or a higher loan-to-value ratio is required than what could usually be offered by banks due to their equity capital regulations.
Manager Fund Operations