How to access private debt investment opportunities in commercial real estate

Traditional methods like direct property ownership and REITs (Real Estate Investment Trusts) are well-known. However, a new segment is gaining attention: private debt investment.

This alternate asset class, with its distinct characteristics, offers unique advantages and stable returns, capturing the interest of both seasoned investors and newcomers alike. In this blog, we’ll explore how to access private debt investment opportunities, specifically in commercial real estate debt. We’ll provide insights on diversifying your portfolio with this asset class which can help maximise returns and mitigate risks in this growing market.

Understanding private debt investments

A private debt investment refers to investors lending capital to private companies or individuals, often with the debt secured against collateral, such as real estate or other assets, to mitigate risk. Unlike public bonds or bank loans, private debt investments are typically not traded on public exchanges and involve direct agreements between lenders and borrowers. This asset class can include various forms of debt, such as mezzanine financing, bridge loans, and senior secured loans.

Why consider an investment in real estate private debt?

Considering a private debt investment can offer several compelling advantages for investors seeking to diversify their portfolios and achieve attractive returns. Some of the key reasons private debt investments is becoming increasingly popular amongst income-seeking investors include:

While private debt investments offer many benefits, it’s important to consider the associated risks, such as credit risk, liquidity risk, and the need for thorough due diligence. Working with experienced investment managers and advisors can help mitigate these risks and enhance the potential for successful outcomes.

The market for private debt investment in commercial real estate debt

The commercial real estate debt market is vast and varied, presenting numerous opportunities for private debt investors. These investments typically fund new developments, property acquisitions, or the refinancing of existing property. The demand for private debt in real estate is driven by factors such as stricter bank lending regulations, the need for quicker turnaround and approval times, and bespoke financing solutions that banks may not be able to provide.

Read this case study for an example.

Conduct due diligence

Real estate private debt is a specialised asset class that requires a specialist investment manager with deep expertise and a core focus on risk management. Thorough due diligence is critical in private debt investment to ensure the credibility of investment opportunities. Real estate private debt has historically exclusively been invested in by large institutional investors, however seven years ago Zagga sought out to change this and democratise access for all investor types via our suite of bespoke solutions.

Investing with Zagga

As a boutique alternative investment manager, we pride ourselves in our ability to present high-quality investment opportunities.

We are also highly disciplined in scrutinising every transaction, selecting only those that fit our rigorous risk underwriting models.

Understanding investment risks: essential information

While real estate private credit investments offer enticing prospects, it is crucial to acknowledge that all investments carry risks. Different investment strategies may carry different levels of risk. Market fluctuations, liquidity concerns, regulatory changes, and specific risks related to each investment type should be carefully evaluated. Thorough due diligence, expert guidance, and a comprehensive understanding of the investment are essential for managing these risks effectively.

The risks associated with an investment in real estate private debt – either directly or via a real estate private debt fund – include possible delays in repayment and a substantial or complete loss of income or principal invested. There is no guarantee that an investment in real estate private debt will achieve its investment objective.

Check out our further information in our FAQs.

Conclusion

Private debt investment in commercial real estate private debt offers a compelling alternative to traditional investment strategies. By understanding the market, building a strong network, conducting thorough due diligence, and effectively managing your investments, you can unlock significant potential returns. As with any investment, it’s essential to stay informed and adaptable, continually refining your approach to navigate the evolving landscape of commercial real estate private debt.

Speak with one of our team today

To discuss the ways through which Zagga can offer the opportunity to incorporate alternative asset classes into your portfolio, improve diversification, potentially enhance returns, and better manage risk.

This article is for information purposes only. It does not take into account your objectives, financial situation or needs. Any opinion expressed in this article are of the author and is subject to change without notice. Readers are reminded to exercise caution and use their own judgment when interpreting and applying the information contained in this article.

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