A report finds that institutional investor appetite for real estate debt investments has grown dramatically over the last two years.
The Preqin report shows that 23% of investors targeted the strategy in August 2013 compared with just 8% in December 2011. In addition, 62% of real estate investors with a preference for debt investments are below their target allocation to real estate, demonstrating the potential for further growth in the future.
Correspondingly, the capital targeted by private real estate debt funds in the market has risen considerably over the last two years to 44 solely debt-focused funds targeting US$25.2 billion in August 2013 from $13.5 billion by 41 funds in the same period last year.
“We have seen a surge in private real estate debt investment in recent years, with fund managers stepping in to fill the void left by traditional lenders retreating from the market,” says Andrew Moylan, Preqin’s head of real assets products. “A growing number of institutional investors are now targeting debt funds, with many believing they can provide them with strong risk-adjusted returns.”
The report also finds that institutional investors with larger assets under management are more likely to invest in debt funds, with 51% of those managing $30 billion or more in assets willing to do so. Conversely, 88% of investors with less than $100 million in assets under management will not invest in debt funds.