Diversification expands the debt investor universe

Debt funds started out as a means to access distressed properties, which was lucrative but appropriate for only a small universe of investors. Following the global financial crisis, however, when the expected distress did not materialize and fund managers needed to place record amounts of capital raised, debt funds expanded their reach. In the past 10 years, the asset class has matured and diversified, so investors now can find just about any strategy and risk/return profile they need.

“Private debt should be viewed as another tool for investment in real estate,” says David Maki, senior managing director, co-head real estate debt, at Heitman. “It can be fashioned for core, value-add or opportunistic strategies, and in the current market, we see the risk/return trade really favoring debt. Today’s market conditions are also giving investors the option to create debt investments across the risk/return spectrum using senior debt, subordinate investments and distressed loa