Real Estate Debt

Real estate debt funds originate or acquire loans secured by real assets. Returns are driven by coupon, fees, and credit discipline, with downside shaped by collateral value, lease cash flows, and enforcement rights.

For allocators, real estate debt is defined by collateral realism—LTV, DSCR, refinance risk, and time-to-resolution.

How allocators define Real Estate Debt exposure

Segmentation includes:

• Seniority: senior, mezzanine, preferred/structured debt
• Collateral: property type, location quality, lease durability
• LTV / DSCR: cushion under stress and cash-flow coverage
• Rate structure: fixed vs floating; cap management
• Sponsor quality: track record and support behavior
• Cycle sensitivity: cap rates, occupancy shocks, refinance windows

Allocator framing:
“What happens if cap rates expand and refinancing shuts?”

Core strategies within Real Estate Debt

• Senior mortgage lending: lower loss severity, lower yield
• Mezzanine / preferred: higher yield, higher loss severity
• Bridge lending: transition risk; execution dependent
• Distressed CRE debt: recovery and timeline complexity

How it fits into portfolios

Used to:

• Generate contractual income backed by collateral
• Add real-asset exposure with downside shaping
• Complement equity real estate with different risk profile

How allocators evaluate managers

Conviction increases when managers show:

• Conservative underwriting and stress testing (rates, cap rates, NOI)
• Strong documentation and enforcement playbooks
• Transparent workout history and timelines
• Discipline on property types and sponsor selection
• Controls on concentration by market and asset type

What slows allocator decision-making

Blockers include:

• Underwriting that assumes easy refinancing
• Overreliance on appraisals without cash-flow realism
• Weak clarity on enforcement rights and foreclosure timelines
• Concentration in cyclical property segments

Common misconceptions

• “Real estate collateral guarantees safety” → collateral can be illiquid and slow to monetize.
• “Senior means safe” → depends on LTV, DSCR, and market liquidity.
• “Bridge loans are short” → they can extend in stressed markets.

Key allocator questions

• What is the underwritten downside LTV under stress?
• How do you manage rate caps and interest reserve risk?
• What is your foreclosure/workout track record by jurisdiction?
• How do you avoid correlated exposure to one market regime?
• What is time-to-resolution in base vs stress?