Private Debt

CHAPTER 22Other Private Debt Opportunities

REAL ESTATE DEBT

Real estate debt is a large, multifaceted market that encompasses a wide range of participants and loan and investment structures, covering the entire universe of commercial property types around the globe. Real estate debt is used by property owners and developers to finance development and leverage the equity invested. Development loans are used by property owners to finance initial site preparations prior to construction. Construction loans, in turn, are provided to developers on an interim basis to help finance new construction and/or property repositioning, pending the owner securing new tenant leases. Once tenants are secured, leases are arranged, and the property is ready for occupancy, permanent mortgage financing is secured, which is backed by the future lease streams. For high‐quality properties with stabilized tenancy by either strong credit quality individual tenants or a diversified group of smaller tenants, permanent financing can be further broken down into low‐cost senior secured tranches and high‐cost mezzanine and other junior tranches. These tranches can be structured to appeal to different groups of institutional debt investors, allowing the property owner to create a total funding package that best meets the owner's needs for price and structure. The terms, costs, and structures of each of these types of debt is a function of the property specifics, the equity and sponsorship, the seniority and ...