| The aftermath of the COVID pandemic—with its associated inflation, rate hikes, supply chain disruptions and rise in material costs, skyrocketing insurance premiums, increased property taxes, and broader economic pressures—has strained cash flow in many existing real estate deals (as well as prospective acquisitions). As a result, operators are seeking innovative ways to keep cash flow alive. One method we included in our most recent fund, Fund 11, and will incorporate into future opportunities, is adding a private credit component to our diversification strategy. What is Private Credit? At its essence, private credit refers to loans that are privately negotiated between borrowers and non-bank lenders. These loans operate outside the traditional banking system and typically offer faster, more flexible financing solutions for businesses and real estate investors. Why Real Estate Investors Turn to Private Credit Lenders Any active investor has been there: you’ve found a great deal, but bank financing feels like it’s moving at a glacial pace, and with all the hoops to jump through, the deal risks slipping away. This is where private credit lenders step in to fill the gap. While the interest rates on private credit loans are typically higher than those of traditional bank loans, the speed, flexibility, and fewer barriers to entry make them a preferred option for many real estate investors working on tight timelines. How Private Credit Complements Portfolios Private credit offers something you don’t get often in today’s market: predictability. With equity-driven cash flow currently more volatile due to market conditions, private credit can offer a stable, cash-flowing component to a diversification strategy. Investors receive fixed, scheduled payments through interest on the loans, providing consistent cash flow even when other parts of the portfolio are exposed to greater risk. In Fund 11, for example, we paired our traditional value-add strategy with a private credit component, which allowed us to project 4-6% year-one cash flow, instead of the typical 2-3%. |
