In this ZEPscope feature, Zenzic Capital examines whether real estate private credit strategies can genuinely deliver in a declining property market, and why the answer may be more encouraging than many advisers assume.
Real estate private credit strategies can perform when property values are declining, and for disciplined lenders, challenging market conditions can create opportunity as well as risk. The assumption that falling values are uniformly damaging for credit strategies deserves scrutiny. Declining asset prices are significantly less problematic when known in advance of lending and the real risk lies in volatility mid-credit, not in a repriced market itself. A lender who prices a loan against current, realistic valuations is in a materially stronger position than one whose security was set when values were at their peak.
The interest rate environment has reshaped the opportunity set for real estate credit in ways that are easy to understate. The significant repricing of credit in favour of lenders has restored the ability to target meaningful returns from senior secured lending against quality assets, something that was difficult to achieve during the preceding era of near-zero rates without taking on disproportionate risk or compromising on collateral quality.
The demand side tells an equally important story. Appetite for real estate credit has remained resilient despite its rising cost, driven by retreating bank lenders, maturing debt obligations, and borrowers with limited alternatives. Banks, constrained by regulatory capital requirements and standardised underwriting models, have pulled back from segments where private lenders can step in with greater flexibility and judgement. This dynamic has created conditions where disciplined non-bank lenders with genuine sector expertise may be well placed to achieve attractive risk-adjusted returns, though as with all investments, capital is at risk and returns are not guaranteed.
For advisers considering how real estate credit fits within a client’s broader portfolio, the key question is less whether the asset class can perform in difficult conditions, but whether the manager has the underwriting discipline and sector knowledge to navigate them. This article sets out Zenzic’s thinking on that question in detail.
For professional advisers only. Capital is at risk. Past performance is not a reliable indicator of future results. Tax treatment depends on individual circumstances and may change.
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