Relative to real estate core equity, mezzanine debt looks a good bet today and has attracted a lot of interest from Asian LPs. However, in our 90-second video, Peter Sotoloff – chief investment officer and managing partner at Mack Real Estate Credit Strategies – says they need to understand the risks, including that changing monetary policy could lead to a drop in asset values.
“Look, I think debt, real estate debt in general, is a relatively new asset class. While there have been mezz funds in history, it’s really come into the mainstream and is still, frankly, unlike corporate lending and BDCs (Business Development Companies) which also are promulgated by the ashes of the global financial crisis due to regulation, real estate lending is still coming into its own as an asset class.
“And I think the learning curve has been quite steep. And there are limited practitioners, although more coming into this space as they see the better relative value than equity, core investing especially at this point in the global economic cycle.
“I would say there is an education process and we’ve had tremendous success over in Asia with a lot of world-class insurance companies, sovereign wealth funds, pension funds and one of the things we try to share with those LPs from our experience is mezzanine lending does carry very specific risks and asset values, despite the increases that we’ve seen due to ultra-low interest rates and very, I would say, expansionary monetary policy, do come to an end.”