Research report

The opportunity in commercial real estate debt

CRE debt may be particularly attractive for investors looking to potentially manage interest rate risk and hedge against inflation risks of tomorrow’s markets.

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June 24, 2021 | 15 minute read

The COVID-19 pandemic and the monetary support that followed exacerbated the long-term secular decline in interest rates.

As yields across traditional fixed income asset classes plunged to new historical lows in 2020, many investors enjoyed strong returns from their fixed income allocations thanks to rising prices. At the same time, however, real yields on core fixed income investments turned increasingly negative.

Given low yields across most fixed income asset classes today, traditional fixed income portfolios face significant downside risks if rates move higher yet offer little upside if rates decline. With this in mind, institutional investors have increasingly turned to alternative asset classes to fill the role that core fixed income typically played within a portfolio.

In this report, we discuss how CRE debt strategies may provide investors with the income, stability and capital preservation that traditional fixed income portfolios historically offered. We also review how the search for alternative income solutions is changing the investor base among CRE debt investors.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Christopher Bole

Financial Writer, Fund Communications

Robert Hoffman, CFA

Managing Director, Credit Wealth Solutions

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