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Debt investing: How are returns being made, and what is the leverage structure?
- February 1, 2025: Vol. 37, Number 2

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Debt investing: How are returns being made, and what is the leverage structure?

by Chase McWhorter

In 2022, when inflation proved to be less “transitory” than the experts would have had us believe, the Federal Reserve began raising interest rates at a pace not seen in decades. While most people working in finance were frustrated at the shift in policy after decades of record-low rates, one segment of real estate investors was content with a higher rate environment: debt teams. The basics of finance were coming back into play after 15 years of record-low rates. Stability and cash flow were becoming a top priority for institutional investors, and debt could fill that need. The “boring debt guys” were finally getting a longer look than their high-flying equity counterparts. Then a series of frustrating realities began to unfold.

First, there were the numerous new entrants to the space. For many long-time debt investors, what they observed was simply opportunists trying to fill a need, not necessarily true believers in the healing power of real estate debt. Second, man

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