Commercial property debt. It’s not just for Institutional Investors.
Investing in commercial property debt is not a new asset class, it has long been the preference of Institutional Investors, Pension and Insurance Companies either directly or via third party commercial property debt funds and until very recently has been totally inaccessible to the individual investor. The main hurdle being a minimum investment requirement in excess of £10m. Peer to Peer Lending Platforms, such as Proplend, are working hard to level the playing field by offering individual investors direct access and at a much more affordable price point.
The following statements from commercial property fund managers are as valid for individual investors as they are for institutional ones:
“The Commercial Real Estate Debt Fund is designed for institutional investors seeking a reliable and attractive source of income with limited capital risk”
“We believe that real estate debt is a compelling investment opportunity, offering investors access to a funding market which is undergoing structural change.
“The fund aims to provide a reliable and stable source of income with limited capital risk, together with the benefit of being an excellent diversifier for existing portfolios”
We believe that the current market opportunity presents significant potential for investors, institutional and individual alike. The banks have retrenched and there is a very large funding gap in the commercial property lending market, a market which is generally considered to be around £30-£40 billion in the UK alone for the next three to five years. This gap is most acute in the sub £5m loan sector, which is estimated to account for 25% of the overall market, and where there are less than 11 lenders actively servicing the overwhelming demand.
What that tells us is that there is an opportunity for income starved savvy investors to be involved in commercial property lending where they are able to generate above-average returns, i.e. something that offers investors a quasi or proxy-like exposure to real estate without taking all of the equity risk.
Here are 4 reasons to consider commercial property debt within your investment portfolio:
Income and security – senior debt offers an attractive stable income yield and provides security over real assets. Senior debt investors take the least risk as they are the first to be repaid
Low correlation with other assets – research shows that commercial property debt offers low correlation with equities and provides some diversification benefits against fixed income assets such as corporate bonds and gilts
Low default probability – a clear legal framework in the UK means that commercial property debt offers a low probability of default and high recovery rates.
Increased portfolio diversification – investing in both real estate debt and equity can potentially increase portfolio diversification while also reducing overall risk.
Proplend offers individual investors direct access to commercial property debt through its online Peer to Peer Lending Platform. Investors are able to make direct loans to borrowers (owners of income producing commercial property) on a deal by deal basis and rather than fund the whole loan, each investor takes a ‘bite sized piece’ of the overall requirement allowing them to build a diversified secured P2P loan income portfolio across many loans. The borrowers not only contract to pay a fixed rate return over the term of the loan but offer a 1st legal charge over the property as security to support the loan. If the borrower defaults on the loan, the property can be sold to redeem the debt.
Gain access to commercial property debt and start investing like an institution.