- November 2011: Vol. 23 No. 10

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Filling the Void: Debt Funds Seek to Take Advantage of Limited Liquidity and Sizable Funding Gap

by Tyson Freeman

Debt real estate funds were once viewed as a niche sector of the private closed-end real estate industry. No more.

Investors have flocked to debt investment strategies in search of attractive risk-adjusted returns in an uncertain, often volatile, post-crash commercial real estate market. Debt-focused funds have attracted lower absolute dollars than they did during the boom, but their percentage of the entire real estate fund universe has surged. Real estate debt fund managers across the risk spectrum argue they are finding solid opportunities and their funds are attracting capital at a healthy clip.

Industry watchers seem to agree that as long as market fundamentals walk a tightrope and traditional debt providers remain cautious, there will be continued interest and opportunities in real estate debt.

Capital raised by debt funds to date in 2011 totals $18.8 billion based on 13 fund closings, down from the 2008 peak of 44 fund closings raising an aggregate of $33

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