In an environment where low interest rates are prevailing in US, investors are again facing the famous question of all times – Where to invest?
Here, an interesting option has now come to the rescue of investors that provides a part of the answer to the above question i.e. Mezzanine Debt in the Commercial Real Estate segment.
“Mezzanine debt is a fixed-income product that produces a consistent dividend yield and is secured by the borrower’s interest in the underlying property.”
As any other investment, mezzanine debt also has virtues as well as risks. Its virtues that have made it a favorable choice include:
- High single-digit to low double-digit coupons
- Backed by hard assets
- Occupies commercial real estate segment where individual investor is under-allocated
- Helps in diversification of portfolios
- There is transparency involved
- Demand for such high-yield subordinate loans is expected to increase
- Reduced lending by banks on commercial property
The risks that need to be considered before investing in this option include:
- Interest rate risk
- Downturn in real estate performance
Thus, mezzanine debt offers a great opportunity for investors as its demand is showing an increasing trend, but its pros and cons have to be kept in mind while making the investment decision.
To know more, please read this highly informative article by Bruce Batkin, CEO and co-founder of Terra Capital Partners, at fa-mag.com:
http://www.fa-mag.com/news/the-case-for-mezzanine-debt-21503.html?section=3
