In today’s competitive, high-interest and inflation-sensitive market conditions, real estate investors are increasingly exploring new asset classes to enhance their portfolio performance. One of the asset classes that is attracting traction is Private Credit. Knowing how to invest in private credit safely involves a clear understanding of its risks, potential returns, and the due diligence involved.  

What is Private Credit?

Private Credit is an asset class that refers to a non-bank entity that lends to businesses or individuals that are typically structured outside the public markets. These loans are used for property acquisition, refinancing, and bridge the lending gap. Learning how to invest in private credit in real estate involves evaluating borrower strengths and weaknesses, repayment and return timelines, and asset quality to leverage the customised terms and higher yields. 

What is the Investor Interest in Private Credit?

The interest in private credit for real estate investors is in its attractive yield profile, flexible structuring, and reduced correlation to public entities. In a market that is constricted by the lending standards of the traditional banks, private credit allows investors to bridge the financial gap and speed up the timeline of their project. Additionally, private credit also allows investors to avoid illiquidity, credit risk, and structural complexity. 

What are your Entry Points?

Before one decides to invest in private credit, one must understand and identify their entry points:

1. Middle-market corporate lending is the primary focus of direct lending funds, which are pooled investment vehicles.

2. Business Development Companies (BDCs are non-traded or publicly traded entities that provide access to private credit.

3. Closed-end funds run by alternative investment firms are known as private debt funds.

4. Co-investments are possibilities to make direct investments with fund managers.

5. Each investment option provides a different level of liquidity and transparency to the investor.

If you found this article interesting click: How to Invest in Private Credit Safely