AT-A-GLANCE
- There are a variety of ways to finance senior mortgage loans. Using 100% debt fund equity is always an option, of course, but utilizing leverage enables more output for a given input – in other words, potential enhanced returns.
- Most debt fund and mortgage REIT managers in today’s senior mortgage space utilize leverage in order to potentially enhance returns.
- There are broadly four types of leverage commonly utilized: Note-on-note financing and warehouse/REPO facilities are forms of third-party leverage, which involves borrowing against equity to enhance returns.
- A-note sales and commercial real estate collateralized loan obligations (CRE CLO) are forms of structured leverage, which involves carving up the loan or portfolio, divesting the most conservative position(s) and retaining the less conservative position(s) for a higher yield.