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European real estate debt: protection across market cycles

02/11/2018

At M&G, where we typically originate the majority of our real estate loans directly with borrowers, our underwriting process enables us to include tailored covenant packages that provide downside protection for our investors.

  • Real estate debt offers stable cashflows, backed by the security of the underlying real estate, which is attractive for insurers looking for high quality income streams
  • In the current environment, with central bank interest rate rises under way or being considered in many markets, the physical asset security backing European real estate debt can offer important protection and value
  • When originating real estate loans, setting bespoke covenants on an asset by asset basis is a key risk management tool
  • Covenants enable a lender to closely monitor the performance of loans, provide early signals of deterioration in the value of the property or a, borrower struggling to repay, and obtain better recoveries from assets in the case of a default
  • This paper offers new insight into the covenant-setting process in real estate debt.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.

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