Why commercial real estate (CRE) debt now?

Investing in CRE debt may offer a differentiated way to invest in real estate and provide an alternative source of income and diversification at a time when both are hard to find.

Significant opportunity

$4.2T

Commercial real estate debt represents over 50% of the total $8.1T sized market1

Creating the opportunity to generate income

6.1%

historical average annual income return2

Investing at the top

While investing in both the equity and debt of commercial real estate properties may provide investors with income, there are some key differences that investors should consider.

Opportunity for attractive risk-adjusted returns

Commercial real estate debt has historically generated an attractive level of income and return with low volatility.

ANNUALIZED RISK AND TOTAL RETURN (6/30/1999–6/30/2019)3

Commercial real estate debt

6.1%

annualized income return over last 20 years

Past performance is not indicative of future results. The beginning time periods referenced are based on the availability of index data.

The performance of traditional fixed income investments, such as corporate and government bonds, has been driven in part by favorable long-term macro trends, which may not be replicated in the coming years.

Opportunity for diversification

CRE debt has exhibited low correlation to major asset classes.

CORRELATION TO S&P 500 (6/30/1999–6/30/2019)4

Learn about FS Credit Real Estate Income Trust

1 Federal Reserve Commercial/Multifamily Real Estate Mortgage Debt Outstanding, Q2 2019.

2 Data from 6/30/1999–6/30/2019. Represented by the Giliberto-Levy Commercial Mortgage Performance Index. The Giliberto-Levy Commercial Mortgage Performance Index measures the investment performance of select private-market investments in commercial real estate debt. Income return is the rate of return generated from any interest or dividends received on the investment. Average annual income return is the average of each year’s income return over the stated time period without taking compounding into account.

3 Commercial real estate debt is represented by the Giliberto-Levy Commercial Mortgage Performance Index. Barclays Agg is the Bloomberg Barclays U.S. Aggregate Bond Index. High yield municipal bonds are represented by the S&P Municipal Bond High Yield Index. Corporate bonds are represented by the ICE BofAML U.S. Corporate Index. Loans are represented by the Credit Suisse Leveraged Loan Index. High yield bonds are represented by the ICE BofAML U.S. High Yield Index. U.S. stocks are represented by the S&P 500 Total Return Index. Each asset class is suitable for specific investor objectives, which vary greatly.

4 Barclays Agg is the Bloomberg Barclays U.S. Aggregate Bond Index. Commercial real estate debt is represented by the Giliberto-Levy Commercial Mortgage Performance Index. Corporate bonds are represented by the ICE BofAML U.S. Corporate Index. Municipal bonds are represented by the S&P Municipal Bond High Yield Index. Loans are represented by the Credit Suisse Leveraged Loan Index. High yield bonds are represented by the ICE BofAML U.S. High Yield Index. Each asset class is suitable for specific investor objectives, which vary greatly.

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.