Craig Oram, Mark Milovic, Jen Wichmann and Alexandra Levy recently sat down in front of the camera to discuss how various teams at LaSalle – in particular Research and Strategy – work in tandem with the US debt investment team to identify prime sectors and locations for investment.

LaSalle’s Research and Strategy team plays a crucial role in our underwriting process. They provide insights on market dynamics, macroeconomic trends, and demographic shifts that can impact property operations and investment performance. By combining their top-down analysis with our decades of lending experience across the US, we can identify attractive opportunities that balance risk with reward. This comprehensive approach enables us to make more informed lending decisions, helping us to mitigate potential risks and work to enhance returns for our investors.

Learn more below.

Real estate debt has always been a valuable component of any portfolio; however, it is emerging as a viable solution to a wide array of investor concerns today. It’s a strategy that offers a range of benefits with attractive risk-adjusted returns across market cycles.

Read our six reasons why investors should consider adding it to their portfolios, and learn more about our capabilities in Europe and the United States below.

1. Attractive risk-adjusted returns: In today’s environment, the combination of elevated interest rates and attractive credit spreads mean that real estate debt offers compelling returns relative to other fixed income alternatives. The potential for achieving these higher yields, while maintaining a relatively conservative risk profile, is appealing to institutional investors looking to mitigate risk.

Real estate debt can offer different opportunities through the market cycle, with the ability to adjust advance rates during market downturns to minimize risk, while benefiting from cyclical recoveries.

2. Stable and predictable income: An allocation to real estate debt may allow investors to enhance their portfolio income returns. The coupon-like nature of interest payments from borrowers can provide consistent and stable cash flows for investors, with a significant portion of the total return being achieved through income returns.

3. Downside protection and capital preservation: Real estate debt offers the ability for investors to gain exposure to the same underlying real estate, but via a protected position in the capital structure, offering an often-significant equity cushion to buffer against potential value fluctuations.

Careful structuring can further enhance downside protections; these investments are typically collateralized by the physical underlying property, providing security that differs to some other forms of fixed income investments. In a default event, active asset management is critical, and managers who have the expertise to step in and manage the underlying asset can further protect against potential losses and in some instances create upside value.

Senior or unlevered whole loan lenders sit in the last-loss position, allowing investors to consider more actively managed business plans than they might be comfortable investing in via an equity commitment.

4. Diversification benefits: Real estate debt provides exposure to one of the largest segments of the real estate market, typically with lower volatility than real estate equity. And adding real estate debt to an institutional portfolio can enhance diversification, as it often has low correlation with traditional asset classes like stocks and bonds, which can help to improve overall risk-adjusted returns.

5. Regulatory efficiency and opportunity: For insurance companies, real estate debt is treated favorably under Solvency II and other similar regimes, making it a capital-efficient way to deploy assets and capture attractive relative returns. Additionally, enhanced regulation has led to retrenchment by traditional bank lenders, creating opportunities for investors working with non-bank alternative lenders, such as institutionally managed debt funds.

6. Inflation hedge: As inflation rises, so too do the interest rates central banks often use to combat it. Real estate debt investments, particularly those with floating-rate loans linked to central bank rates, can therefore offer some protection against inflation.

Important notice and disclaimer

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment. LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance. By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2025. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

Craig Oram, Portfolio Manager and President of LaSalle Debt Investors and Alexandra Levy, Head of Debt Capital Markets, Americas, discuss the reasons why investors are increasing allocations to US real estate debt.

How should institutional investors seek out reliable income in 2025 when the majority of outlooks – including ours – are expecting the volatility of recent years to continue?

One answer for many investors has been increasing allocations to private credit. Elevated interest rates and repriced assets have led to better lending conditions for providers of alternative funding, with higher yields at lower loan-to-value ratios.

Learn more below.

This article first appeared in a Real Estate Debt special report in the February 2025 issue of Private Debt Investor (subscription required to read the full issue).

LaSalle’s David White and Craig Oram provide insights on navigating the evolving real estate debt markets in the US and Europe. They discuss the risk-adjusted returns that debt investments offer compared to equity, emphasizing steady returns and favorable lending conditions driven by recent market changes. They also share LaSalle’s strategic focus on scalable opportunities and underutilized assets, with a significant emphasis on the for-rent residential sector in the US.

On November 19, 2024, LaSalle hosted a client webinar to discuss the outlook for listed real estate. LaSalle Global Solutions Chief Investment Officer Matt Sgrizzi offered a recap of our recent ISA Briefing: A new “golden era” for REITs and real estate? and took questions from clients in attendance.

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment.

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

This article first appeared in the Fall 2024 edition of PREA Quarterly

Chris Battista, Senior Product Manager at LaSalle Global Solutions, and Brian Klinksiek, Global Head of Research and Strategy, discuss the value of publicly traded real estate investments.

Investors should consider a holistic approach to the real estate asset class across the “four quadrants.” This means considering opportunities spanning both equity and debt positions on one dimension and both private and public market executions on the other (Exhibit 1). Doing so captures the full gross capitalization of real estate, enhances diversification, and opens opportunities to capture the best relative value. We call this being “quadrant smart” in LaSalle’s recently released ISA Portfolio View 2024, an annual report on portfolio construction.

Allocating between real estate debt and equity investing should be driven by risk appetite, views of relative pricing, and an investor’s broader portfolio considerations. Although debt investing has been quite topical over the past two years and covered by multiple investment managers, including LaSalle (see ISA Focus: Investing in Real Estate Debt), this article discusses the relationship between the public and private avenues to real estate equity investment.

Institutional investors tend to be well versed in private equity real estate investing but less consistent in their approach to the publicly traded side of real estate—even though the public side offers similar characteristics, a broad opportunity set, and often leading signals on the broader market’s direction. This article focuses on how to think about using both sides of the equity real estate investing coin, public and private, to maximize access and potentially improve the overall risk-adjusted return profile.

This article first appeared in the November 2024 edition of IREI Americas (subscription required).

Senior real estate credit specialists from LaSalle discuss the rising significance of senior real estate mortgage credit in investment portfolios with Institutional Real Estate Investor. They explore its ability to provide steady income and downside protection, the growing role of alternative lenders, and the current market opportunity. The article examines how this strategy offers attractive risk-adjusted returns, portfolio diversification, and enhanced resilience in today’s dynamic economic environment.

Dave White, Head of Real Estate Debt Strategies, and Dominic Silman, Europe Head of Debt and Value-add Capital Research and Strategy, discuss how we find opportunities and the evolution of the investment landscape over the last 15 years.

Dave White and Dominic Silman discuss our investment selection process, which combines bottom-up, on-the-ground market knowledge with top-down, macroeconomic and geopolitical analysis to identify attractive investments that meet our investment criteria.

In addition to how we identify opportunities, they cover where we are likely to invest, and how the opportunities before us have evolved over the last decade and a half.

Last year, we released the inaugural edition of LaSalle’s ISA Portfolio View, where we discussed the art and science of portfolio construction and why it matters most when market conditions change suddenly. That was certainly true at the time of last year’s release and remains so today.

In this year’s edition, we cover the five foundational concepts of portfolio management below, and how they should be considered alongside an investor’s objectives and values to devise a strategy for their portfolio.  

Important Notice and Disclaimer

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment.

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

Listed real estate investment trusts (REITs) have faced a tough two and a half years, driven by the rapid tightening of financial conditions (see LaSalle Macro Quarterly, or LMQ, pg. 13). Sentiment towards REITs has been weighed down not only by the higher interest rate environment, but also by constrained bank lending, a barrage of negative headlines about commercial real estate and REIT underperformance relative to the broader equity market. But, as the saying goes, it’s often darkest before the dawn.

The modern REIT period has seen three “golden eras” of REIT investing (see chart below).¹ These have been characterized by either a dramatic growth in the REIT market or outsized investment returns versus other asset classes, or both. The Savings and Loan (S&L) crisis spurred what is often considered the birth of the modern REIT era in the mid-1990s. During this period, the number of REITs increased by nearly 50%, while the market cap of that group grew nearly seven-fold. Following the Dot-com bubble, a period where REITs had been significantly out of favor, the REIT market endured a multi-year run of strong absolute performance in which it cumulatively outperformed broader equity markets by more than 300%. The period following the Global Financial Crisis (GFC) saw the rise of dynamic new property sectors in the public market, and another period of outperformance in which REITs led broader equities by 50%.

While each golden era was unique, our analysis finds that each period was preceded by challenging circumstances with four common elements (see LMQ pg. 14). These are:

• dislocation of bank lending to real estate;
• broad-based negative sentiment around real estate;
• underperformance versus broader equities which leads to attractive relative valuation and the potential for renewed outperformance; and
• an easing or reset of financial conditions, potentially aided by a central bank easing cycle.

Recent history, marked by a post-pandemic recovery followed swiftly by the Great Tightening Cycle (GTC), presents important similarities to these historical periods of severe market challenges. For instance, real estate bank lending is dislocated. An AI-driven tech frenzy and fears of a generalized “commercial” real estate malaise mean REITs have underperformed compared to equities (see LMQ pg. 22). Meanwhile, signs of an easing or stabilization in financial conditions and a potential global monetary easing cycle are becoming more apparent (see LMQ pgs. 9, 10 and 30).

While history does not repeat itself, it does often rhyme. The presence of those elements in today’s market environment, and the potential for those concerns to flip to opportunities, may foretell the next REIT golden era. We discuss each of these factors in turn.

Challenged real estate lending represents an opportunity for REITs. The past two to three years have been characterized by a significant retrenchment in bank lending to real estate. According to the US Senior Loan Officer Survey (see LMQ pg. 16), the net balance between demand for loans and banks’ willingness to lend points to the widest undersupply of credit in the past ten years, except for during the depths of COVID-19. The shortage is evident in all styles of borrowing, from riskier construction loans to mortgages backed by traditional, defensive apartment assets. 

This circumstance presents an opportunity for REITs given their strong financial positions and access to the capital markets. Having learned a painful lesson from the GFC, global REITs went into the GTC with their lowest leverage levels on record (see LMQ pg. 16), and nearly 90% of their debt on fixed rates and an average remaining term of seven years.² Looking specifically at the US market, the overwhelming majority of REIT borrowing – nearly 80% – is from the unsecured market, at rates that are today almost 100 bps lower than a traditional mortgage. This relative advantage in both access and cost of capital positions REITs to potentially play the role of aggregator and to take market share.

“Commercial” real estate negativity is office-focused, but all real estate is not office. Headlines proclaiming the demise of commercial real estate usually involve a misleading generalization. Professionally managed, income-producing real estate generally should not be conflated with office specifically. It is well known that hybrid work and other factors have harmed office values. Office fundamentals are expected to remain relatively weak,³ with the sector’s growth outlook trailing nearly all other REITs globally. Office landlords will likely need to invest capital aggressively to maintain competitiveness.

These challenging office sector dynamics have unfairly cast a shadow over the broader real estate and REIT universe. In reality, office has over time become a smaller portion of the real estate landscape, especially in the public market; as of the date of this paper, only about 6% of global REITs by market capitalization are office focused (see LMQ pg. 20).⁴ The public market now offers a diverse sector menu comprising a wide range of dynamic sectors. These include industrial and logistics; forms of rental residential including multi- and single-family rental, manufactured housing and student housing; various formats of healthcare property; and exposure to tech-related real estate in the form of data centers and cell towers. Sectors other than office comprise the overwhelming majority of the public REIT market,⁵ and many of those sectors have growth outlooks that are forecast to produce earnings growth that is in line with or better than broader equities.⁶ That growth outlook is underpinned by a combination of secular demand drivers and declining supply levels, the other side of the higher interest rate coin.⁷

Media coverage naturally tends to focus on the national and trans-national arenas, but local political developments can be especially impactful for real estate investments. Such issues can fly under the radar, especially given many of the most relevant ones are only of interest to a specialist audience. For example, changes in policy around topics like the planning process, property taxes and transfer taxes (a.k.a. stamp duty) can have direct, measurable and immediate impacts on property cash flows and thus values. The distraction of the bright shiny lights of global geopolitics should not be allowed to excessively overshadow the critical local issues that impact real estate. 

Underperformance may set the stage for a return to outperformance. The negativity around lending or financing concerns and the “death of office” have weighed on both the absolute and relative performance of REITs. The chart below shows the rolling one-year relative performance differential between REITs and equities; it indicates that REIT underperformance has reached its typical peak historical level before starting to reverse. Periods of underperformance have historically tended to reverse, and this instance is likely no different; indeed, the performance gap is already narrowing.

The start of a global monetary easing cycle. Real estate is a capital-intensive business that exhibits significant sensitivity to changes in financial conditions, an observation that holds for both directions of interest rate change. The downside of this dynamic was evident for much of 2022 and 2023, but the upside is likely coming into play. A global monetary easing cycle is now decidedly underway, heralded by the Fed’s 50 bps rate cut on September 18 (see LMQ pg. 31). REITs have generally performed well in periods leading up to and following a central bank easing cycle, as the chart below shows.

Over the past 25 years, REITs have produced total returns of 8% per annum, with 4-5 percentage points of that return coming from income. LaSalle’s base case underwriting for the next three years is for the REIT market to produce total returns of 9%, slightly above historical averages, with roughly four percentage points of that coming from income. That base case forecast incorporates today’s fundamental outlook and interest rate levels. Should any further easing in financial conditions occur, even only in the amount of 50 bps or 100 bps, those return expectations increase to 13% and 18% per annum, respectively, in line with previous “golden eras.”

Footnotes

¹ This analysis based on LaSalle Securities analysis of historical macroeconomic, capital market and listed market trends. Source for the REIT performance data cited below are the FTSE Nareit indices.
² Source for debt pricing comments in this paragraph: S&P Global Market Intelligence, Green Street Advisors, company financial releases, company research and market analysis conducted by LaSalle Securities.
³ There is considerable global variation in office performance, and there are certainly exceptions to this generalization, especially in select Asia-Pacific markets and the higher end of the European office quality spectrum. For more discussion of global office trends, see our ISA Outlook 2024 Mid-Year Update.
⁴ Source: LaSalle Securities. Percent of companies classified as office focused within the global listed universe defined as the constituents of the S&P Developed REIT, FTSE EPRA Nareit Developed and Nareit All Equity Indices. Sector classifications determined by LaSalle Securities.
⁵ As measured by market capitalization. Source: LaSalle Securities. Global listed universe defined by the constituents of the S&P Developed REIT, FTSE EPRA Nareit Developed and Nareit All Equity Indices. Sector classifications determined by LaSalle Securities.
⁶ As based on LaSalle Securities proprietary modelling and consensus earnings forecasts for the Bloomberg World Index, a proxy for broader equity markets.
⁷ Higher interest rates mean development proformas use higher exit yield assumptions and more expensive development finance. When interest rates are high, all else being equal, the rents required to justify development are higher.
⁸ Based on proprietary internal LaSalle Investment Management modeling of securities returns. There is no guarantee that such forecasted returns, or any other returns referred afterwards, will materialize.

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment.

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

Dave White, Head of Real Estate Debt Strategies, and Brett Ormrod, Net Zero Carbon Lead for Europe, discuss the current and future state of green lending across Europe.

While lending volumes across the market remain volatile, data shows one continuously increasing metric: the demand for green loans, which is being driven by the ever-growing sustainability requirements from both investors and sponsors.

Dave White and Brett Ormrod discuss the challenges that borrowers and investors are facing, and how we at LaSalle are navigating these dynamics. They discuss how green loans are impacting the European real estate market, what they can mean for investors’ bottom lines, and the overall opportunity not just for green loans, but for greener assets in investors’ portfolios.

This article first appeared in the September 2024 edition of PERE

LaSalle’s Isabelle Brennan sat down with peers from other leading alternative credit providers across the US to discuss the state of real estate debt across the United States.

US private lenders eye real estate opportunities as activity ramps up

With banks likely to remain on the sidelines amid regulatory changes, participants in PERE’s US debt roundtable anticipate openings to deploy capital both in refinancing and new acquisitions, Stuart Watson reports.

Over the past 18 months higher interest rates, uncertainty about property values, and questions over secular shifts in demand for some asset classes have combined to suppress activity in US commercial real estate lending markets. Meanwhile both money center and regional banks have scaled back activity in the face of concerns over the health of their balance sheets, and the expected introduction of stricter capital requirements aimed at reducing liquidity risk.

This article first appeared in the August 2024 edition of IPE Real Assets

With increasing regulations and more investors embedding sustainability goals into their investments, incorporating green targets into the debt component of the capital structure is becoming more common. As a result, the debt market across Europe is becoming a two-tiered market, with more green loans being issued at the same time as overall lending volumes have declined.

In this guest article for IPE Real Assets, Dave White discussed the growing appetite for these loans across Europe, and how both lenders and investors are responding to this changing landscape.

At LaSalle, we are often asked what investors in real estate debt and what borrowers of our credit solutions can expect from us.

For investors, knowing that their investment manager has successful, long-term relationships with their borrowers is a strong sign that those interactions will continue, and that attractive investment opportunities will remain available. This dynamic allows us to remain both disciplined and selective in the areas where we choose to invest capital.

For borrowers, recognizing that their credit provider has a wide range of capital solutions, and can offer competitive terms backed by certainty of execution is paramount to our success. Further, this is what drives such a high repeat borrower base and the ability to foster long-term relationships with our borrowers.

As one of the largest providers alterative credit solutions in Europe¹, we find ourselves in the enviable position of being able to truly understand how important both borrowers and investors are to the whole equation. This dynamic allows us to remain active investors in this market, highlighting our expertise in the sector.

What can real estate debt investors expect from LaSalle?

What can real estate debt borrowers expect from LaSalle?

1. Source: Real Estate Capital Europe, Summer 2023 issue

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

LaSalle is one of Europe’s largest and most established investors in real estate debt, offering a variety of loan types across sectors. Learn more about this dynamic asset class, and LaSalle’s capabilities from Dave White, Head of European Debt Strategies here at LaSalle.

Dave White, Head of Real Estate Debt Strategies, Europe discusses the market in 2024 and where we are seeing opportunities for investors.

Over the last several years, we have seen an increase in the number of institutional investors around the world interested in adding real estate debt to their portfolios.¹ In some instances, this is to replace an allocation to traditional fixed income, while in others it is both an enhancement and a way to further diversify their current level of real estate holdings.

Real estate debt versus traditional fixed income

Real estate debt differs from traditional fixed income investments in a variety of ways, primarily through collateralization, income generation, differing risk factors, the potential for securitization and its direct relationship to underlying real estate assets. In the same way that investors looking for reliable income streams and relative stability across a number of fixed income products such as government bonds or corporate credit, they can also turn to real estate debt investments.

One key differentiator for the asset class is that it is typically secured by tangible collateral in the form of real estate. Further, real estate credit investments benefit from attractive positions within a capital structure, benefitting from a subordinated first-loss position from equity, and also from negative control structures which give lenders an ability to proactively protect capital in a downside scenario. In contrast, traditional fixed income investments such as corporate or government bonds are usually unsecured and rely solely on the creditworthiness of the issuer.

For many institutional investors, income generation is a key objective and something that real estate debt investments can generate primarily through interest payments on the loan. These interest payments are often higher than on traditional fixed income investments such as sovereign or investment-grade corporate bonds. Additionally, real estate debt may also offer the potential for additional income through loan origination and exit fees, or in some instances, profit participation. Like other investments in any asset class, real estate assets are subject to market fluctuations and economic cycles. There are, however, additional property-specific risks that investors should take into consideration. These include factors such as underlying occupancy and cash-flow drivers as well as capital markets. Investors should also consider the wider macroeconomic and credit-risk considerations that investors in listed fixed income must factor into their decision making. Lending against property embeds the possibility of active takeovers, also known as workouts, requiring hands-on asset management expertise. 

In some instances, real estate debt can be securitized, meaning loans are packaged together and sold as securities in the market. This allows investors to gain exposure to real estate debt through mortgage-backed securities (MBS) or collateralized debt obligations (CDOs). Traditional fixed income investments, on the other hand, are typically traded as individual bonds or included in bond funds.

Lastly, real estate debt investments are directly tied to specific properties or real estate platforms. The performance of the underlying property and its cash flows can impact the value of the debt, along with a borrower’s ability to repay it. Traditional fixed income investments are generally linked to the creditworthiness and financial health of the issuer, without a direct connection to specific underlying assets.

So why should institutional investors consider real estate debt?

As with any other asset class, real estate debt has its own unique set of attributes which, as part of a diversified, risk-adjusted portfolio, may provide investors with compelling reasons to include it within their overall strategy.

Key benefits may include: 

• Stable income generation: Real estate debt investments can offer institutional investors stable, predictable income streams. Fixed income from interest payments on real estate loans provides a source of reliable cash flow, which can help insurance companies meet their obligations to policyholders or help pension schemes ensure that they have enough cash on hand to meet near-term pension payments. 
• Risk-adjusted returns: Historically, real estate debt investments have provided attractive risk-adjusted returns. Investments in senior debt, for example, typically offer relatively lower risk compared to equity investments, while still providing competitive yields. This can be particularly appealing to pension schemes that prioritize stable returns and capital preservation. 
• Liability matching and a long-term investment horizon: Pension schemes and insurance companies both have long-term obligations to pay future benefits. Real estate debt investments, with their typically longer durations and cash flow characteristics, can align well with these long-term liabilities. By matching the duration and cash flows of their investments with their obligations, pension plans can better manage their long-term funding requirements. Similarly, insurance companies typically have long-term investment horizons and investments with longer durations are often well suited to their needs. Real estate debt investments, with their longer repayment terms, can align well with the long-term nature of both kinds of liabilities, allowing for assets and liabilities to be more effectively matched. 
• Diversification: Investing in real estate debt can help institutional investors to diversify their portfolios. By including real estate debt alongside other asset classes such as stocks, bonds, and even real estate equity, they can spread investment risk across different markets and sectors, reducing the overall volatility of their portfolio. 
• Risk mitigation and capital preservation: Real estate debt investments are typically secured by tangible collateral in the form of real estate. This collateral can help provide a level of protection as lenders typically have the ability to enforce, which serves as a buffer against defaults and reduces the risk of principal loss compared to unsecured investments. 
• Regulatory considerations: Some institutional investors, particularly insurance companies, often face regulatory requirements related to capital adequacy and risk management. Real estate debt investments, particularly senior debt, are typically treated favorably under such regulatory requirements, providing capital efficiency to investment portfolios. 

As always, it’s important that real estate debt, like any other asset class, is considered as a component part of an overall portfolio of investments constructed with the underlying objectives of the investor in mind. When properly integrated into a portfolio, real estate debt investments have the potential to offer institutional investors the opportunity to generate stable income, diversify their portfolios, align their investments with long-term liabilities, protect against inflation, target attractive risk-adjusted returns and, in some cases, adhere to regulatory requirements. 

¹ INREV Investment Intentions Survey, 2017 – 2024

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment. LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance. By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management. GL001731MAY25

This article first appeared in the May 2024 edition of PERE

LaSalle’s Dave White sat down with peers from other leading alternative credit providers across Europe to discuss the state of real estate debt across the continent.

Opportunities are slow to unfold in European real estate debt

A golden era for alternative real estate lenders has so far failed to get underway. But there are signs the machinery is becoming unclogged, writes Judi Seebus

A year ago, alternative real estate lenders in Europe were convinced they were on the cusp of a golden age. During PERE’s European debt roundtable discussion in March 2023, participants spoke of a “huge” opportunity ahead to take advantage of a potential shortfall in refinancing funds for maturing loans amid a potential retrenchment from traditional lending sources. “I have seldom been this excited to be investing in debt,” said one participant.

Important Notice and Disclaimer

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment.

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2023. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

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