Principal: Investors should look into debt over equity

With investment returns across geographies and strategies narrowing, investors should consider a barbell strategy pairing two distinctively different risk-and-reward buckets, reported Principal in its annual strategy outlook for 2020 report.

On the core, low-risk spectrum, high-yield real estate debt and private real estate with strong credit and lease durations attached should be favored. On the high-risk, opportunistic spectrum is shovel-ready development projects given strong margins.

Principal said it favors debt over equity due to the global economy. With the Fed joining the ECB’s easing stance and lowering benchmark interest rates, debt investment returns are likely to come under pressure in 2020, especially if lenders start to compress margins in order to remain competitive. Structurally, however, real estate debt is well positioned to offer investors (a) the ability to provide capital for both de-gearing and re-leveraging strategies and (b) a subordinated equ