Commercial real estate (CRE) debt reflects a defensive investment opportunity that can be accessed by institutional investors across the risk/return spectrum, through strategies targeting different parts of the capital structure – from senior to junior debt, or a blend of both.
We believe that the nature of the asset class can offer both significant downside protection and attractive return potential. An investment in real estate debt can deliver stable cashflows due to its fixed income nature, as well as providing the benefit of hard asset security. The ability to match liabilities to these cash flows can be beneficial, along with favourable capital treatment of CRE debt investments for insurers.
Our capabilities
Senior debt represents the most senior portion of the capital structure and has the first claim to cash flows and proceeds in the event of a loan’s default or enforcement, with recourse to the underlying real estate asset.
Senior loans are made at typically conservative loan to value (LTV) levels of between 50% and 65%, meaning significant falls in the value of underlying real estate assets can be withstood before principal is exposed to a potential loss, supporting capital and return potential.
Senior CRE lending therefore offers investors access to the least risky part of the capital structure. Typically, senior debt offers lower yields compared to subordinated positions within the capital structure due to its lower risk profile. Loans can be structured to achieve an investment grade style risk profile. Senior debt can also offer an attractive alternative to core direct real estate investment, offering similar returns with embedded downside.
Our strategy aims to offer attractive risk-adjusted returns with regular income and security over prime assets in key locations across core western European markets. Returns can be further enhanced by investing in transitional and development loans, where financing is less prevalent, interest is typically capitalised and specialist skills are required to underwrite, structure and monitor transactions.
M&G is one of Europe’s largest and most established non-bank CRE debt providers, with on-the-ground debt and equity expertise in both the UK and Europe. As part of M&G’s £73 billion* private markets business, our specialist real estate debt team has invested more than €15 billion of capital across both senior and junior debt strategies, with the ability to provide large-scale, single-source loans. Directly originating and holding loans to maturity is a key differentiator, with the potential to optimise investor protections and returns, while providing greater execution certainty for borrowers.
Data as at 31 March 2024, source M&G Investments unless otherwise stated. *M&G Investments, as at 31 December 2023.
Junior debt occupies a subordinated position in the capital structure, sitting ahead of equity and behind senior debt with respect to repayment rights in the event of a loan’s default or enforcement. With loan to values (LTV) ratios typically ranging from 65% to 80%, junior debt reflects a higher risk premium than senior loans, while still secured against high quality real estate.
Investing in junior debt therefore has the potential to generate higher returns than for senior debt on an absolute basis. Junior debt can also offer an attractive alternative to value add direct real estate investments, typically offering similar returns with embedded downside protection.
Our strategy aims to offer attractive risk-adjusted returns with regular income and better security over prime assets in key locations across core Western European markets. Returns can be further enhanced by investing in transitional and development loans, where financing is less prevalent, interest is typically capitalised and specialist skills are required to underwrite, structure and monitor transactions.
M&G is one of Europe’s largest and most established non-bank CRE debt providers, with on-the-ground debt and equity expertise in both the UK and Europe. As part of M&G’s £73 billion* private markets business, our specialist real estate debt team has invested more than €15 billion of capital across both senior and junior debt strategies, with the ability to provide large-scale, single-source loans. Directly originating and holding loans to maturity is a key differentiator, with the potential to optimise investor protections and returns, while providing greater execution certainty for borrowers.
Data as at 31 March 2024, source M&G Investments unless otherwise stated. *M&G Investments, as at 31 December 2023.
Blended debt secured against commercial real estate has the potential to generate returns ahead of senior CRE debt at a risk level below junior debt. By investing in strategies that are able to invest in both areas of the capital structure, investors can achieve a blended risk and return profile based on their risk/return requirements.
Our strategy aims to offer attractive risk-adjusted returns with regular income and security over high quality, sustainable assets in large, transparent markets. Returns can be further enhanced by investing in transitional and development loans, where financing is less prevalent, interest is typically capitalised and specialist skills are required to underwrite, structure and monitor transactions.
M&G is one of Europe’s largest and most established non-bank CRE debt providers, with on-the-ground debt and equity expertise in both the UK and Europe. As part of M&G’s £73 billion* private markets business, our specialist real estate debt team has invested more than €15 billion of capital across both senior and junior debt strategies, with the ability to provide large-scale, single-source loans. Directly originating and holding loans to maturity is a key differentiator, with the potential to optimise investor protections and returns, while providing greater execution certainty for borrowers.
Data as at 31 March 2024, source M&G Investments unless otherwise stated. *M&G Investments, as at 31 December 2023.