Investing in Real Estate Debt: Is it Real Estate or Fixed Income?

22 Pages Posted: 20 Sep 2017

Date Written: September 2017


This paper will analyze the risk return profile of real estate debt. Using a Monte Carlo simulation model, different debt layers (mezzanine and senior) are analyzed and compared to real estate investments. The results clearly show that senior debt is not heavily correlated to real estate and therefore behaves more like fixed income and should be valued accordingly. Mezzanine, however, is correlated to real estate, especially the downside, and should clearly be underwritten as such. Furthermore, due to a scarcity of finance, debt can show superior risk return characteristics over direct real estate and private funds. This scarcity is likely during periods of thin liquidity and uncertain valuations on the balance sheet, as recently demonstrated by the global financial crisis.

Keywords: Investment, Mezzanine, Private real estate, Real estate debt, Senior debt, Simulation

Suggested Citation

van der Spek, Maarten, Investing in Real Estate Debt: Is it Real Estate or Fixed Income? (September 2017). Abacus, Vol. 53, Issue 3, pp. 349-370, 2017, Available at SSRN: or

Maarten Van der Spek (Contact Author)

PGGM Investments ( email )

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