For real estate investors, debt markets have become a significant focus in recent years. Since 2020, $137.2 billion has been raised for debt strategies across more than 430 closed-end funds. This accounts for around 16% of CRE fundraising, a sign of investment managers’ and investors’ expanding view of real estate opportunities.

The growth in debt vehicles highlights investors’ efforts to expand capital deployment across multiple strategies, deepening offerings across the capital stack. A multitude of investment managers and investors are looking to credit strategies as a growth driver for capital deployment, and to grow their assets under management (AUM).

It's timely as well. Credit strategies can perform particularly well during elevated interest rate environments when it comes to absolute yield. To look into the diversification benefits that debt strategies offer, we evaluated the spread between capitalization rates for commercial real estate and the all-in commercial lending rate in the US relative to the 10-year Treasury.