Beyond Equity: Why CRE Debt Deserves a Closer Look
Alicia: Hello and welcome to our latest private credit update. Today I am joined by Seray Incoglu, portfolio manager and head of our private real estate debt asset management.
Text on screen: Alicia Li, Private Credit Strategist
In recent years, commercial real estate has faced significant challenges: rising rates, reduced liquidity, fewer transactions, and a meaningful pull-back in lending from traditional lenders. Here at PIMCO, we believe this has created a persistent and lasting opportunity in private real estate debt. Seray, could you tell us a little bit more about this opportunity?
Seray: Thank you for having me Alicia and I’m happy to discuss what we are seeing.
Text on screen: Seray Incoglu, Portfolio Manager and Head of Global CRE Debt Asset Management
To start, as you noted, it’s important to recognize how much pressure the commercial real estate market has been under in recent years – from the pandemic followed by inflation and geopolitical tensions – all coupled with the uncertainty around rates.
While this challenging backdrop continues to weigh on liquidity, the volatility also creates opportunities across the financing spectrum.
In the CRE credit space, we are now able to originate senior loans based on recalibrated property values — and with lender-friendly terms and enhanced credit protections. Compared to direct real estate investments, these loans offer compelling risk adjusted returns.
Second, today, potential economic slowdown and greater cash flow volatility are likely to extend the transitional phase for many real estate assets.
Third, we continue to see growing and persistent demand for private capital in the commercial real estate space — especially for transitional loans. The maturity wall is intensifying as large volumes of debt approach maturity while transaction activity and liquidity remain subdued. And with trillions of CRE debt needing refinancing, there is a widening gap between the capital available and what’s required to service these maturities.
Lastly, we continue to see opportunities to acquire existing loans and securities at attractive discounts, particularly as traditional lenders and even private capital look to free up liquidity and de-risk.
Together, these factors lay a prime foundation for strong opportunity in the CRE lending space.
Alicia: Seray, you mentioned transitional loans. What are transitional loans and why do we find it particularly compelling?
Seray: Transitional lending provides capital to lease-up, renovate, or reposition commercial properties. Real estate assets aren’t static – properties progress through lifecycle stages like development, lease-up and stabilization, and eventually renovation as they age.
Today, many properties face longer transition periods due to economic uncertainty and changing tenant demands. At the same time, tighter banking regulations and higher rates have increased the cost of capital for these loans, creating opportunities for private capital.
What make these loans compelling is they support business plans that enhance asset value. That creates a margin of safety for lenders — as the borrowers receive distributions only after the property reaches stabilization. This structure aligns incentives and limits downside for the lender.
Alicia: How does commercial real estate debt fit within a private credit portfolio?
Seray: In today’s uncertain economic climate, traditional drivers of real estate equity returns – rent growth and value appreciation – have become less predictable. Commercial real estate debt offers a more defensive profile: stable cash flows, enhanced downside protection, and seniority in the capital stack.
In addition, commercial real estate lending often shows lower correlation with traditional public and private markets, providing potential diversification benefits. With property values down 15 to 30 per cent since peaks in 2021, entry points may be more attractive, especially compared to corporate valuations that are near historical highs.
For real estate focused investors, debt can offer better relative value than core equity, especially in a higher rate environment where capital flows increasingly favours credit over equity.
For private credit investors, CRE credit often comes with liquidity and complexity premiums, lower mark to market volatility, and better risk-adjusted returns – often backed by hard assets and supported by covenants and structure designed to help mitigate default risk and improve loss recovery.
And for fixed income investors, commercial real estate credit can provide higher yields, floating interest rate exposure, lower correlation to major markets, and contribute to portfolio diversification.
Alicia: Since 2019, PIMCO has deployed over $23 billion in commercial real estate debt, navigating the pandemic, geopolitical tensions, rising rates and inflation. What do you think has been the key to our success?
Seray: We believe that there are three key, proven elements to success in the commercial real estate credit space: disciplined underwriting and investment selection, hands-on proactive asset management and risk mitigation, and lastly, unwavering access to financing markets.
We use a rigorous underwriting process that taps into PIMCO’s proprietary analytics, macro insights and cycle-tested real estate expertise. This helps us assess borrower quality and asset value and structure each deal with the right pricing, terms, and covenant protections.
Equally important is our hands on, proactive asset management of each loan. Our dedicated team closely monitors each asset and borrower, staying close to sector and market trends, operating performance and any emerging risks. This proactive oversight lets us spot and act on potential challenges early before they become problems.
And lastly, our relationships with financing partners and unwavering access to flexible capital give us flexibility in how we structure and manage these investments, even during market volatility.
We believe this three-pronged, disciplined process supports resilient performance throughout the market cycle, particularly during times of heightened volatility and economic stress.
Alicia: Thank you, Seray, and thank you for joining us today. We hope you have found that useful. If you’re interested in finding out more, please contact your PIMCO account manager.
Disclosures
IMPORTANT NOTICE
This material is being provided for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy interests in a fund or any other PIMCO trading strategy or investment product. Past performance is not a guarantee or a reliable indicator of future results.
The material contains statements of opinion and belief. Any views expressed herein are those of PIMCO as of the date indicated, are based on information available to PIMCO as of such date, and may not have been updated to reflect real time market developments. Statements of opinion are subject to change, without notice, based on market and other conditions. No representation is made or assurance given that such views are correct. PIMCO has no duty or obligation to update the information contained herein.
All investments contain risk and may lose value. Investments in residential/commercial mortgage loans and commercial real estate debt are subject to risks that include prepayment, delinquency, foreclosure, risks of loss, servicing risks and adverse regulatory developments, which risks may be heightened in the case of non-performing loans. Mortgage and asset-backed securities are highly complex instruments that may be sensitive to changes in interest rates and subject to early repayment risk. Structured products such as collateralized debt obligations are also highly complex instruments, typically involving a high degree of risk; use of these instruments may involve derivative instruments that could lose more than the principal amount invested. Private credit involves an investment in non-publicly traded securities which may be subject to illiquidity risk. Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk. Bank loans are often less liquid than other types of debt instruments and general market and financial conditions may affect the prepayment of bank loans, as such the prepayments cannot be predicted with accuracy. There is no assurance that the liquidation of any collateral from a secured bank loan would satisfy the borrower’s obligation, or that such collateral could be liquidated. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not.
Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | PIMCO Asia Pte Ltd (8 Marina View, #30-01, Asia Square Tower 1, Singapore 018960, Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited (Suite 2201, 22nd Floor, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong) is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. To the extent it involves Pacific Investment Management Co LLC (PIMCO LLC) providing financial services to wholesale clients, PIMCO LLC is exempt from the requirement to hold an Australian financial services licence in respect of financial services provided to wholesale clients in Australia. PIMCO LLC is regulated by the Securities and Exchange Commission under US laws, which differ from Australian laws. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2025, PIMCO.
CMR2025-0608-4643502