Real Estate

The Structural and Cyclical Case for U.S. Real Estate Debt

February 2021 – 12 min read
While the ongoing disruption from the pandemic will put downward pressure on market fundamentals until the virus is no longer a threat, opportunities will likely emerge across the risk-return spectrum in advance of a recovery in demand and property income.


  • The U.S. commercial and multifamily real estate debt market is a massive investible universe with hundreds of billions of dollars’ worth of mortgages originated annually. 
  • Real estate debt exposure historically has provided a stable income return; loans are secured by collateral, providing additional downside protection leading to strong risk-adjusted returns.
  • Shifting lender risk appetites and restrictive financial regulations over the past decade have created an opening in the market for non-bank lenders.
  • Despite near-term headwinds due to COVID-19, expectations of a robust economic recovery in the second half of 2021 should create opportunities to provide debt capital across the risk-return spectrum in advance of a recovery in occupier demand and property income.

Commercial and multifamily real estate debt (CRE debt) has been part of the U.S. investment universe and institutional portfolios for many decades. However, over the past two market cycles the asset class has attracted growing interest as yields across most fixed income markets have trended lower, and as the real estate debt market has continued to evolve and mature. This paper provides a brief overview of the U.S. CRE debt market and the traditional arguments for including the asset class in a mixed asset portfolio. We also discuss why the current environment may provide an attractive entry point for investors seeking to add or increase exposure to the asset class.

The Structural Case for U.S. Real Estate Debt

The traditional case for private CRE debt in a mixed-asset portfolio rests on three main pillars: (1) the large size and diversity of the opportunity set; (2) the potential for stable and attractive absolute and risk-adjusted returns; and (3) the potentially powerful portfolio diversification benefits.

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