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Steady as she goes…Is Commercial Real Estate Debt the safe harbour investors need in this stormy weather?

Since the UK referendum result to leave the European Union, financial markets across the world have been extremely volatile. This market reaction should be no surprise given the uncertainty over the terms that the UK will agree on its exit and the implications on the economy’s outlook. However, are there opportunities amongst the uncertainty?

This market reaction should be no surprise given the uncertainty over the terms that the UK will agree on its exit and the implications on the economy’s outlook. However, this is not the only unknown: Britain will be the first significant member to leave the EU and its decision raises questions over the stability of an already fragile political union. The market disruption follows recent episodes of market uncertainty and stuttering economic growth. Asset valuations, buoyed by quantitative easing were becoming stretched given this outlook and the referendum result provided the opportunity for a market correction. Property REITS suffered significantly with the UK FTSE EPRA Index falling by over 20% over the two days after the vote. The index has recovered since but further volatility is expected, particularly as the direct property market adjusts to the changing landscape.

Against such a backdrop, investments into real estate debt may provide some stability. Real estate debt investments deliver practically all of their returns through a consistent income stream. They also benefit from the borrowers’ equity positions providing an inherent buffer, to any market volatility. Real estate debt investments therefore have potential to deliver a consistent, steady income return with downside protection. Such resilience and reliability could be helpful given the expectation of further uncertainty ahead.

This document is intended solely for the use of professionals and is not for general public distribution. Any assumptions made or opinions expressed are as of the dates specified or if none at the document date and may change as subsequent conditions vary. In particular, the document has been prepared by reference to current tax and legal considerations that may alter in the future. The document may contain "forward-looking" information or estimates that are not purely historical in nature. Such information may include, among other things, illustrative projections and forecasts. There is no guarantee that any projections or forecasts made will come to pass. International investing involves risks, including risks related to foreign currency, limited liquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic or other developments. Past performance is no guarantee of future performance. The value of investments and the income from them may go down as well as up and are not guaranteed. Rates of exchange may cause the value of investments to go up or down. Any favourable tax treatment is subject to government legislation and as such may not be maintained. The valuation of property is generally a matter of valuer’s opinion rather than fact. The amount raised when a property is sold may be less than the valuation. Nothing in this document is intended or should be construed as advice. The document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. TH Real Estate is a name under which Henderson Real Estate Asset Management Limited provides investment products and services. Issued by Henderson Real Estate Asset Management Limited (reg. no. 2137726), (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3BN) which is authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. COMP201600234

Jason Rodrigues

Vice President, Debt Underwriting & Execution

Jason's biography