Debt Funds are a growing part of the real estate fund industry, with institutional investors are increasingly realising the value that real estate debt can add to their existing real estate portfolios. There are a growing number of institutions that believe that debt funds can generate greater returns with a lower level of risk than equity investments in real estate. To this end, there are a significant number of investors that plan to commit to funds with a debt strategy in the future.
Preqin’s data shows that North American investors have the strongest appetite for private real estate debt funds, accounting for 73% of all debt fund investors. Fifteen percent of debt fund investors are based in Europe. While Asia and the Rest of World investors make up 8% and 4% of debt investors respectively.
Real estate debt strategies are favoured by 59% of sovereign wealth funds. Real estate fund of fund managers also show significant interest in debt vehicles with 49% demonstrating a preference for debt funds. This group of investors is more inclined to invest in debt vehicles as they may have a higher risk tolerance than other investors such as pension funds that need to liability match.
Thirty percent of real estate debt fund investors would consider first-time funds in comparison to only 12% of the rest of the real estate investor universe that have an appetite for first-time funds. Similarly, a greater percentage of debt investors, 10%, would invest only in spin-offs, whereas only 6% of other institutional real estate investors would consider investing in spin-offs.