Private real estate debt: Out with the old and in with the new

March 22, 2024 | 5 min read

Troy Kort, CFA

Portfolio Manager, Principal Real Estate Investors

The significant property valuation declines which have occurred in commercial real estate (CRE), the accompanying market stress, and the pullback in direct lending by the banks are creating attractive opportunities in real estate debt. As investors consider allocating capital to the space, it is important to understand the drawbacks of legacy strategies/portfolios in today’s marketplace and the benefits of new strategies which are not burdened by the risks related to legacy loans.

Key takeways

The underlying collateral for CRE loans underwritten before (and during) the Fed’s series of interest rate hikes have experienced material valuation declines.
Marking legacy loans is a challenge.
Underlying collateral valuation lag has not fully played out.
The risk embedded in legacy portfolios climbs along with higher LTVs.
Other risks to legacy portfolios (not present in new portfolios underwritten to current values).
New strategies/portfolios should benefit from restart of credit cycle and growth of private lending (bank dislocation).

Allocations to real estate credit strategies should be made in vehicles targeting new investments. Download the paper for the full perspective.

Real estate

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Delegation of Investment Management to Affiliates

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This website may contain videos where the comments were valid on the date the video was recorded. Markets move continuously and you should only rely on current information for any investment decisions. The information and materials contained on this website, and the terms, conditions, and descriptions that appear, are subject to change. All content on this website is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

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This website contains general information only on investment matters and nothing in this website is intended to constitute or form part of any offer or inducement to issue or sell, or any solicitation of any offer to subscribe for or purchase, any securities or investment products in the UAE (including the Dubai International Financial Centre) and accordingly should not be construed as such. Information in this website is not directed at you if we are prohibited by any law of any jurisdiction from making the information on this site available to you and is not intended for any use that would be contrary to local law or regulation. Products or services mentioned on this site are subject to legal and regulatory requirements in applicable jurisdictions and may not be available in all jurisdictions. Accordingly persons are required to inform themselves of and observe any such restrictions.

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This website contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information it contains does not take account of any investor's investment objectives, particular needs or financial situation. Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision. You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision.

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