Investing in real estate private credit continues to attract attention from advisors seeking income strategies that behave differently from traditional market-based investments. One commonly referenced benchmark is the expectation that real estate private credit may offer a 2% to 4% premium over more liquid alternatives. This expectation is often tied to how private lending functions, how capital is deployed, and the structural differences between private loans and publicly traded instruments.
Real estate private credit refers to non-bank, privately negotiated loans secured by property assets, acting as an alternative to traditional bank financing. Instead of purchasing bonds or securities that trade daily, investors allocate capital to real estate loans that are used for property acquisitions or refinances, it offers investors steady income via interest payments while holding senior, mezzanine, or debt positions secured by properties.
Lenders frequently use basis points (bps) as the primary unit of measurement to analyze, compare, and price real estate loans, where:
Liquid investments are assets that can be bought or sold quickly without significantly affecting their market value. Common examples include publicly traded stocks, exchange-traded funds (ETFs), mutual funds, Treasury securities, and publicly traded corporate bonds. Because these investments trade frequently in public markets, investors can enter or exit positions relatively easily. While this flexibility has value, it also compresses pricing through constant market repricing.
The differences between liquid investments and private credit help explain why advisors often expect higher return potential from less liquid strategies.
|
Feature |
Liquid Investments |
Private Credit |
|
Liquidity |
Can typically be bought or sold quickly |
Capital is committed for a defined period |
|
Pricing |
Priced continuously by public markets |
Pricing is based on negotiated loan terms |
|
Examples |
Stocks, ETFs, mutual funds, Treasury securities, public bonds |
Bridge loans, direct lending, private real estate debt |
|
Return Driver |
Market price movement, dividends, or bond coupons |
Contractual interest payments and loan terms |
|
Volatility |
More exposed to daily market swings |
Less influenced by daily market sentiment |
|
Flexibility |
Investors can enter or exit positions relatively easily |
Investments are generally held until repayment or maturity |
|
Structure |
Standardized and publicly traded |
Customized based on borrower, property, and transaction |
|
Expected Return Premium |
Typically lower due to higher liquidity |
Often targets a 2% to 4% premium to compensate for reduced liquidity |
Red Tower Capital is an independent private real estate lending and investment firm specializing in bridge loans, bespoke lending solutions, and alternative investments. With more than 60 years of collective real estate industry experience across mortgages, development, property management, acquisitions, and sales, the firm emphasizes reliable execution, transparency, and consistent communication throughout the investment process. Investors who would like to review current private investment opportunities may explore available offerings through our website.