Roundtable 'Real Estate Debt'

November 24, 2025

^{This report was originally written in Dutch. This is an English translation.}

Real estate debt offers good diversification in a broader property portfolio and contributes to income returns. Sharpe ratio analyses show that the risk-return profile for real estate debt is better than for most other asset classes. Private lending stimulates growth in this market.

By Hans Amesz

How big is the market for real estate debt in Europe, the United States and worldwide? And in emerging, public and private markets?

Christian Janssen: ‘There are no accurate or generally accepted statistics available on this. In Europe, it is estimated to be around one trillion euros in real estate debt, of which approximately 220 billion is in the United Kingdom. I don't think there are comprehensive statistics for emerging markets. In Europe, we are only active in private markets. We do not participate in the CMBS market.’

Andrew Gordon: ‘It is notoriously difficult to find reliable figures. This is because there is no central authority to which lenders are required to report their data.’

Janssen: ‘Reporting does take place and is actually improving. Studies have been published in the UK, Germany and France, and there are some jurisdictions where more and more figures are becoming available. This issue has been around for more than two decades, and market participants are demanding greater transparency.’

Gordon: ‘There is no data on the performance of funds, which is a major problem. MSCI has started compiling indices of senior debt funds and mezzanine debt funds.’

Janssen: ‘That is a valuable attempt to attract more investors to real estate debt.’

Antonio de Laurentiis: ‘Lack of transparency is an obstacle to providing information to investors, but at the same time it is an opportunity for us. We can capitalise on this inefficiency in the sense that we can achieve slightly better economic results than in a fully transparent market index that is much more correlated with the public market, as is often the case in the United States.’

What kind of investors do you see in this market? Private, institutional, family offices? Why are they buying these loans?

Gordon: ‘In Europe, it is mainly institutional investors: pension funds and insurers. There is some interest from family offices. In the United States, much more capital is raised from retail investors.’

Amina Ibrahim: ‘Interestingly, family offices are becoming increasingly involved in real estate debt, but they regard it as a supplement to their cash position. They are becoming more sophisticated and diversifying their portfolios accordingly.’

Nathalie Bruijn: ‘For some of our institutional clients, we can invest between 10% and 15% of their mandate in debt. We see this as a good diversification in the broader real estate portfolio and it contributes to the income return.’

De Laurentiis: ‘Pension funds want a stable income, but also an absolute minimum return. Insurance companies, on the other hand, are more responsive to relative value. They look at the illiquidity premium and also at the efficiency of the asset class in terms of capital treatment.’

Vincent Nobel: ‘We take a similar view: real estate debt can be a means of diversification for real estate equities. But we try to go a step further by saying that it should not actually be about higher-yielding real estate debt, because that often has slightly higher leverage and may correlate with equity. Our goal is to break that correlation.’

Gordon: ‘MSCI has compiled an index of senior debt funds. This index only goes back eight years and shows some inconsistencies, but it outperforms open-end pan-European real estate funds over that period.’

Nobel: ‘I think the goal is to outperform equities during, say, half of the cycle. If equities outperform debt in the other half of the cycle, that should result in a much smoother ride. After all, we have seen that even a core asset can behave quite disastrously if you own it at the wrong time.’

Janssen: ‘The market is evolving, mainly because the underlying leverage has changed. As a result, returns are starting to reach double digits, which is attracting a whole range of other investors. A significant number of players are starting to see real estate debt as an attractive alternative. Back leverage creates, in a sense, a synthetic mezzanine exposure, a way to cautiously increase returns. It increases the risk somewhat, but many investors are willing to take that marginal, incremental risk.’

Nobel: ‘I think the traditional view was that senior loans don't generate high returns, but they do deliver consistent returns. Real estate has a very asymmetrical cycle, say ten good years and two bad ones. Looking back over the past seven or eight years, senior loans have yielded higher returns than real estate shares, and with fewer bumps along the way, which is also worth something. It wasn't a free lunch, because when the tide turns again, we will earn less money than is possible with shares, but we will still earn something. The idea is that senior real estate debt is less dependent on market timing.’
 

When a project is underwater, mezzanine no longer adds value and people would rather see it removed.

 
Is the market growing? And if so, why?

Ibrahim: ‘The market has certainly grown. I think there are several reasons for this, but the most obvious ones are the cutbacks by the banks. As a result of stricter regulations, they have withdrawn as lenders. In principle, private and alternative lenders have been given more leeway for the kind of flexible solutions that many sponsors need nowadays. You can see that private lending is really stimulating growth in the market. Banks have a role to play, especially in the core sector where they can still bear the risk by essentially conducting standard transactions with a lower LTV (loan-to-value) ratio.’

De Laurentiis: ‘Banks are subject to stricter regulations. On the one hand, this limits the scope of their activities and, on the other hand, the flexibility they can offer in terms of leverage, types of loans, and so on. That is why the market share of alternative lenders such as ourselves is increasing.’

Janssen: ‘In recent years, refinancing has been particularly difficult for some property owners, partly because banks were uncertain about the regulations, but also because the availability of bank capital was simply limited. The only option these property owners had was either to go to a new alternative lender that had just raised money with very high return targets, or to go to their existing lender and ask for a deferral. The past few years have been almost a golden age for property lending.’
 

It is particularly difficult to find reliable figures. After all, there is no central authority to which lenders are required to report their data.

 
To what extent do regulatory capital requirements, such as Basel III and Solvency II, influence the behaviour of banks vis-à-vis private lenders in real estate financing?

Gordon: ‘It is difficult to demonstrate that banks are reducing their total exposure to real estate debt. Banks may be reducing their direct exposure, but they are increasing their provisions for underlying leverage. This indirect exposure to real estate is difficult to quantify. What I see is that the market is polarising to a certain extent in terms of the availability and pricing of debt. Large deals, top sponsors and certain asset classes are very attractive to many lenders. Smaller deals, smaller sponsors and less attractive regions are less appealing. It is much more difficult for borrowers to obtain loans at favourable rates.’

Ibrahim: ‘I agree. I think that polarisation is not so much competition, but rather that parties are simply operating in the areas that work for them. Banks and insurers are focusing more on core assets, while private lenders can be more flexible and agile. In a sense, there is almost a partnership, with everyone seeking their own place in the market, because the capital projects that need to be tackled are significant in terms of loans. I think private lenders have broader opportunities, that technically they can still operate from core to opportunistic.’

De Laurentiis: ‘The banks have moved from an 'originate and hold” model to “originate and sell”, which ultimately limits what they can keep on their balance sheets. Parties such as ourselves are not restricted by this. The other point is that, without increasing the risk curve, we can differentiate ourselves through our real estate activities. Banks have traditionally focused on offices and shops, but we can offer the expertise to finance more operational activities, such as Student Life Science, data centres, and so on. I think banks are dropping out because it is too expensive for them. For us, it is a way to gain access to the new generation of the best assets.’

Janssen: ‘It's about efficient capital allocation. Banks do what they are good at and what their regulatory constraints and risk frameworks allow them to do, and alternative credit providers do what works for them and their investors. I don't necessarily see that as competition. It's not just about price, but also about speed of execution, flexibility, covenants, multiple currencies or multiple jurisdictions, that sort of thing.’
 

Managers with experience in structuring and creative solutions can potentially extract more value from investments.

 
Nobel: ‘A concise version of portfolio theory is that diversification is good and more diversification is better. I don't think that applies to real assets. You have to reach a level where you are efficiently diversified and take positions in assets and sectors that appeal to you. That's easier for us because we're not as systemic providers of capital as banks are. But you can also diversify too much.’

Bruijn: ‘When it comes to diversification, I think it also depends on how often a loan defaults. If it is a large loan, it will affect the overall return. Even if you successfully resolve the issue, it is difficult to recover all your costs, which slows down your return. You don't have that problem in a more diversified portfolio consisting of mostly relatively smaller loans.’

Gordon: ‘Portfolio diversification can help limit the impact of a failed loan on the total return. But if the failed loan involves many assets in many different countries, the manager will be dealing with it forever. There are different levels of diversification.’

De Laurentiis: ‘We would never advocate funds that focus on a single jurisdiction or asset class, because at some point you will find yourself at the wrong moment in the cycle. It comes down to real estate expertise and knowledge of the cycle, but you need a certain balance in the portfolio.’

What can you say about deal structures?

Nobel: ‘I think all these loans are generally non-recourse, meaning that in the event of default, the lender can only recover from the collateral and not from the sponsor's other assets. Our starting point is that we provide a loan under certain conditions and if the conditions are not met, or the assumptions are no longer correct, there may come a time when you can intervene.’

Gordon: ‘In the United States, there are usually non-recourse carve-outs. Then you have guarantees from a financially substantial entity, which to a certain extent mitigates the fact that you have a limited set of covenants. The risk we need to be aware of is that large international financial sponsors can pick and choose the parts of the European and American structures that suit them best.’

Janssen: ‘The beauty of private debt is that it can meet the business needs of the sponsor. There is a whole range of options, and sometimes a single lender can offer the borrower two or three different options. This has enabled enormous creativity in the market to meet the needs of borrowers, but sometimes also to address the risks in the structure that the borrower sees. If investors want stable income and protection against downside risks, they will generally engage in senior lending.’

De Laurentiis: ‘What can set us apart from the bank is our expertise in real estate. Banks rely on third-party reports, which means you are twelve months behind reality. If you are on the ground, you have an idea of what is happening in terms of values, and if you can also read the property cycle, that helps.’

How do you see the role of mezzanine financing and preference shares evolving in the current capital structure?

Bruijn: ‘Mezzanine financing was developed after the global financial crisis, particularly in Europe. Because it was a relatively new product, over the years more knowledge has been gained about how to structure this type of financing so that you can better manage the risks of a mezzanine position. In addition, there is now a better understanding of the risks compared to equity and senior positions and, with that in mind, what the correct pricing is for mezzanine credit. An interesting lesson learned in mezzanine credit is that in some cases, equity was better off than the mezzanine credit provider, because the senior needs the equity or the borrower to complete the project. When a project is underwater, mezzanine no longer adds value and people would rather see it disappear. A wait-and-see approach often does not work for mezzanine, because it is pushed out of the stack by rising senior interest rates, increasing costs and delays, so that you get further and further out of the structure. No market recovery can counteract that.’
 

What investors value is conviction. A fund manager must also tell you when not to invest.

 
Janssen: ‘The challenge with mezzanine is that you have much less recourse than with senior debt, but you can be compensated for the risk taken by the higher returns generated. It can be an important instrument. Lenders must be selective. And that comes down to the underlying sponsor performance and the underlying asset forecasts.’

De Laurentiis: ‘The most important thing is risk control. Control has two dimensions. First, voting rights: you have to negotiate with both the board of directors and, possibly, a syndicate. Second, you need real estate expertise, because the point is that it is not necessary to buy out the senior, as this rarely makes economic sense.’

What is the impact of back leverage on the European real estate debt market?

Gordon: ‘The availability of back leverage has led to fierce competition in certain parts of the market, resulting in tighter margins. It is a relatively new phenomenon in Europe and seems to be replacing much of what used to be mezzanine, but it carries risks that are perhaps less well understood than mezzanine risks.’

Ibrahim: ‘We have not yet seen any interest from European clients in the American back leverage product.’

De Laurentiis: ‘What will happen if regulations in the United States change tomorrow and American banks no longer receive favourable treatment for leverage?’

Janssen: ‘Back leverage is not free, of course. You have to inform investors about the risk, because they are being offered senior funds with back leverage, not mezzanine funds. Back leverage is less mature in Europe than in the United States, where leverage levels are considerably higher. In Europe, few managers apply four times leverage. There, it is generally limited to one or one and a half times leverage.’

Gordon: ‘The market is developing. There is room for European funds to catch up with the United States.’

From an asset manager’s perspective, where does real estate debt fit into a diversified portfolio and how does it compare to infrastructure debt or corporate credit?

Ibrahim: ‘That depends on the size and objectives of the allocator. Smaller allocators will place all real estate in one category, while more advanced parties will place it either in a category for real estate debt or in a category for private loans.’

What is the typical risk profile?

Gordon: ‘There are Sharpe ratio analyses that show that the risk-return profile for real estate debt is better than for most other asset classes. But with real estate debt, there are many different points on the risk-return spectrum to choose from.’

Ibrahim: ‘Compared to infrastructure, you have broader sector exposure, because real estate debt simply covers more sectors and offers more flexibility.’

Janssen: ‘The collateral in an infrastructure transaction is certainly less liquid and probably less volatile, partly because many of these transactions involve long-term contracts, from toll collection to pipelines. Real estate has proven to be more volatile than infrastructure, but that does not detract from the fact that a long-term lease agreement with creditworthy tenants is probably just as stable and attractive as financing a wind farm for a long period.’

What should you look for when selecting a manager?

Bruijn: ‘A manager must have workout skills and capacity. Furthermore, a manager needs local roots in order to be present in the market with the necessary expertise. He or she must be familiar with the complex legal system in Europe and how to structure loans in different jurisdictions.’

Ibrahim: ‘To add to that, a manager should have a strong track record, ideally over multiple cycles, both in terms of the fund and the investments and portfolio managers. Managers with experience in structuring and creative solutions can potentially extract more value from investments.’

Janssen: ‘Everything that has been said is important, but the continuity of investment teams and co-investment capital is crucial, at least for the more conservative investors in some of our funds.’

De Laurentiis: ‘What matters to investors is conviction. A fund manager must also tell you when not to invest.’

Is real estate debt generally seen as a sustainable or even impactful investment? And if so, why?

Bruijn: ‘Loans are often used in the real estate sector. Given that real estate has an impact on the environment, lenders have an equally important responsibility in terms of ESG.’

De Laurentiis: ‘Real estate is responsible for 30% of global CO2 emissions. You can really influence that. Furthermore, real estate is an asset class where you can carry out real measurements. You can report on energy efficiency, energy consumption, and so on. As a result, investors can trust you based on the right KPIs. ESG must also make sense for investors from an economic point of view. By financing more green assets or the transition, you hedge your exit risk or build up assets that will perform better. ESG must be linked to financial performance and not just to pure reporting.’

Gordon: ‘In Europe, given the regulations and the requirements of investors and tenants, you absolutely have to take into account the expected ESG characteristics of the assets, today and at the end of the loan. That affects your financial performance. Most of the borrowers we work with operate in an ESG-friendly manner that optimises the values of the underlying properties of the loans we provide.’
 

What was considered a green loan five years ago is now an average loan. Standards are improving and will continue to evolve.

 
Bruijn: ‘For us, it is a requirement for borrowers to report on the relevant ESG items. In the beginning, this could be a problem, especially for smaller parties, but now it is increasingly accepted and parties know what is expected of them.’

Janssen: ‘I would say that we are all ESG lenders. You can no longer rent out a building if it does not meet the required parameters. What was considered a green loan five years ago is now an average loan. Standards are improving and will continue to evolve.’

Real estate accounts for more than 30% of CO2 emissions, which means that this asset class plays a key role in decarbonisation. How should a lender respond to this?

De Laurentiis: ‘We can exert pressure. As real estate experts, we have already played an active role by providing information, bringing uniformity to measurements, and so on. Incidentally, there is a difference between American and European asset managers in the area of ESG. The latter group has often integrated ESG into their investment process.’

Where are the greatest opportunities for institutional investors in real estate or real estate debt?

Nobel: ‘I think the opportunity lies in the fact that institutional investors are starting to see real estate in a broader context. It is not only an illiquid credit investment, but also a defensive real estate investment. Many investors are probably still suffering from what they have had to endure in recent years as a result of the global pandemic. As far as I'm concerned, the opportunity lies not so much in this or that sector or region, but rather in seeing a large-scale reallocation of assets, adjusted to the risk appetite of institutional investors.’

Where do you see the most opportunities in real estate debt, spread across different risk profiles and sectors?

Ibrahim: ‘We see the most opportunities in senior lending for transitional assets/business plans. There are opportunities in all sectors, but we see the greatest structural opportunities in residential construction and logistics. We like hospitality in certain European markets, particularly in Southern Europe. We are also enthusiastic about data centres.’
 

In my opinion, the opportunity lies not so much in this or that sector or region, but rather in seeing a large-scale reallocation of assets.

 
Gordon: ‘The big opportunity for real estate debt lies in the growth of private markets as a whole. Real estate debt is an important part of private markets, which is why all investors in those markets should also invest in real estate credit. It offers advantages in terms of absolute returns and also in the lack of correlation with other asset classes.’

What can you say about AI?

Ibrahim: ‘AI makes us a lot more efficient in assessing risks and identifying emerging trends.’

De Laurentiis: ‘AI can accelerate the use of data, which is very important when you are financing billions in loans. I am optimistic about the use of AI in relation to private debt.’