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Commercial Real Estate (CRE) Debt
Commercial Real Estate Debt, or CRE debt, is a form of real estate private credit. CRE debt provides financing to borrowers, secured by registered mortgages over the borrower’s real asset(s) as security. The borrowers will typically utilise the funds to acquire established real assets, development sites, and/or to fund construction and other project related costs.
The value of the assets is assessed by an accredited valuation company. The fund manager will conduct due diligence on the asset, the project and the borrower on their credit worthiness and structure the transaction based on risk and returns.
Post settlement, fund managers such as Labassa Capital will manage and monitor the investments and provide investors ongoing reporting until the repayment date.
Characteristics of CRE Debt Investments
Tangible Security: CRE Debt is typically secured against registered mortgages over real assets. Value of the assets is verified by an independent professional valuation company and the fund manager.
Stability: historical data on real asset value in Australia market shows that the asset values have been less volatile to macro-economic events, relative to other investment assets such as listed securities.
Regular Income: the average investment term of real estate private debt transactions is between 12 to 18 months. Investors receive interest income throughout the life of the investment and full principal repayment upon maturity.
Portfolio Diversification through CRE Debt Funds
Risk Diversification: Pooled CRE funds, such as the Labassa Capital Australian Real Estate Credit Fund (Labassa Credit Fund – LCL3034AU), allocate funds to a range of loans, secured by a pool of registered mortgages. This provides investors diversification on asset types, locations, borrowers, and reduces the overall risk profile.
Alternative to Ownership of Real Assets: Compared to traditional real estate ownership, investing in pooled funds requires lesser capital and lesser concentration on assets and location. Labassa Credit Fund has no fees on entry or exit, whereas traditional property ownership incurs stamp duty and agent selling costs.
Non-correlation: In times of macro-markets volatility, commercial real estate debt is generally not subject to large shift in values over short periods. CRE debt investments are more resilient as the funds are lent utilising a maximum loan to asset value ratio (LVR) which provides additional buffers in the event of a decrease of the asset value.
Labassa Capital is a specialist real estate investment management company with deep expertise in CRE Debt investing. If you are interested in knowing more about Labassa or commercial real estate debt investing, please get in touch on contact@labassa.com or 02 9061 6600.