The US market is highly attractive to investors, largely due to its dominant IT sector. However, amidst the general excitement over tech stocks, it's often overlooked that the US real estate sector also offers substantial opportunities for lenders, as highlighted by Remo Badertscher in his article for finews.first.
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The environment for Commercial Real Estate Debt (CRED) has undergone significant transformation due to macroeconomic developments and regulatory changes.
Among these, senior mortgages stand out as particularly advantageous, offering investors valuable opportunities for diversification and income generation. Four Key Factors That Make CRED a Compelling Investment Option in the Current Market:
1. Sustained High Interest Rates Drive Yield Advantages
Following a decade of low interest rates, the Federal Reserve has implemented sharp rate hikes since early 2022, raising rates from near-zero to over 5% in under 18 months.
For lenders, this shift has enabled the inclusion of interest rate floors in new contracts, securing higher minimum returns. This protection is especially beneficial when rates decline, ensuring income stability for investors.
2. Capital Protection Through Low Loan-to-Value (LTV) Ratios
Senior mortgages typically feature conservative LTV ratios, often between 50 percent and 60 percent in most CRED funds.
This prudent approach provides substantial equity protection, with losses only occurring in cases of significant declines in the underlying property values. This safeguard enhances investment resilience, particularly during periods of market volatility.
3. Wider Spreads Offer Alternative Lending Opportunities
Heightened regulatory requirements and normalized monetary policies have increased pressure on traditional banks, creating a financing gap in the market. This shift has allowed non-bank lenders to gain market share and capitalize on wider spreads, which offer investors higher returns.
The market potential is considerable – between $450 billion and $500 billion in US mortgages are set to mature annually through 2027, presenting an attractive segment for alternative lenders.
4. Growing Market Share of Alternative Lenders
Non-bank lenders now account for 40 percent of the US commercial real estate mortgage market. This trend is also gaining traction in Europe, creating fresh opportunities for investors. As non-bank credit structures continue to integrate into the market, Europe is evolving into an increasingly attractive environment for those seeking bank-independent lending solutions.
For institutional investors seeking stability and steady income in volatile markets, CRED offers a valuable «all-weather» component that enhances portfolio balance and diversification.
Given the opportunities presented by the evolving credit market landscape, CRED is well-positioned to establish itself as a strategic asset class in Europe over the coming years.
Remo Badertscher is a founding partner and executive of Valvest, an investment firm based in Vaduz. With 25 years of experience advising private and professional investors, his career spans roles at Axa, Man Investments, GAM, and UBS, giving him a global perspective on investment strategies. He is also a board member of Fenthum (Switzerland), a fund distribution company, highlighting his leadership role in the Swiss financial landscape.
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