Opportunity in Real Estate Credit: 4 Key Takeaways

Mike Sobolik - Investment Strategist, Direct Real Estate, North America

Private lender originations in commercial real estate (CRE) credit have surged significantly, surpassing pre-pandemic levels and indicating a growing market share for private lenders in CRE financing.¹ This trend is driven by policy rate reductions and stabilizing property prices, creating renewed investor interest in this asset class. Our four key takeaways:

• Private lender originations surged — CRE loan originations by private lenders increased 64% over the past year and are 35% higher than 2019 levels,¹ marking a substantial rise in private lender market share.
• Historically strong risk-adjusted returns — Over the past decade, private real estate credit has delivered higher return potential with lower volatility compared to other asset classes, making it an attractive investment option.²
• Historically higher income yields — Commercial real estate credit has historically provided enhanced income yields relative to traditional fixed income investments, supporting its appeal for income-focused investors.³
• Favorable current conditions — With policy rates expected to remain meaningfully higher than the near-zero rate of the previous decade,⁴ and real estate prices reset about 19% below peak values,⁵ the environment offers a timely entry point for real estate credit investments. 

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1 Sources: Invesco Real Estate, utilizing data from Mortgage Bankers Association, as of Sept. 2025.

2 Sources: Invesco Real Estate using data from the following indexes: Private real estate credit – Giliberto-Levy High-Yield Real Estate Debt Index (G-L 2) with a 2.6%10-year annualized standard deviation and 8.0% 10-year annualized total return; high yield – Bloomberg US Corporate High Yield Index with a 8.6% 10-year annualized standard deviation and 5.4% 10-year annualized total return; senior loans – Morningstar LSTA Leverage Loan 100 Index with a 6.4% 10-year annualized standard deviation and 5.1% 10-year annualized total return; private real estate equity – NCREIF Property Index with a 4.0% 10-year annualized standard deviation and 5.2% 10-year annualized total return; corporate bonds – Bloomberg US Corporate Total Return Value Unhedged USD Index with a 7.3% 10-year annualized standard deviation and 2.9% 10-year annualized total return; commercial mortgage-backed securities (CMBS) – Bloomberg US CMBS Investment Grade Index with a 4.5% 10-year annualized standard deviation and 2.6% 10-year annualized total return; investment grade bonds – Bloomberg U.S. Aggregate Total Return Index with a 5.3% 10-year annualized standard deviation and 1.8% 10-year annualized total return; Treasuries – Bloomberg U.S. Treasury Total Return Unhedged Index with a 5.6% 10-year annualized standard deviation and 1.2% 10-year annualized total return; US equity – S&P 500 Index with a 16.0% 10-year annualized standard deviation and 13.6% 10-year annualized total return; direct lending – Cliffwater Direct Lending Index with a 2.9% 10-year annualized standard deviation and 9.0% 10-year annualized total return. Trailing 10 years of data, last 10 years of quarterly returns, annualized 2015-Q3 to 2025-Q2. An investment cannot be made into an index. Past performance does not guarantee future results. The indexes aren’t subject to fees or expenses.

3 Sources: Invesco Real Estate using data from the following indexes: Direct lending – Cliffwater Direct Lending Index with a 10.36% 10-year average distribution yield; private real estate debt – Giliberto-Levy High-Yield Real Estate Debt Index (G-L 2) with a 10.32% 10-year average distribution yield; high yield – Bloomberg US Corporate High Yield Index with a 7.09% 10-year average distribution yield;, senior loans – Morningstar LSTA Leverage Loan 100 Index with a 6.56% 10-year average distribution yield;, private real estate equity – NCREIF Property Index with a 4.48% 10-year average distribution yield; corporate bonds – Bloomberg U.S. Corporate Total Return Value Unhedged USD Index with a 3.78% 10-year average distribution yield; commercial mortgage-backed securities (CMBS) – Bloomberg US CMBS Investment Grade Index with a 3.43% 10-year average distribution yield; investment grade bonds – Bloomberg U.S. Aggregate Total Return Index with a 3.04% 10-year average distribution yield; Treasuries – Bloomberg U.S. Treasury Total Return Unhedged Index with a 2.42% 10-year average distribution yield. Trailing 10 years of data, the last 10 years of quarterly yields (Q3-2015 to Q2-2025) are annualized. Past performance is not a guarantee of future results. An investment cannot be made into an index. There is no guarantee that any trends shown herein will continue.

4 Source: Federal Open Market Committee, median projections, Sept. 17, 2025.

5 Sources: Invesco Real Estate, utilizing data from Green Street as of Oct. 2025.

Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.

The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

Generally, real estate assets are illiquid in nature. Although certain kinds of investments are expected to generate current income, the return of capital and the realization of gains, if any, from an investment will often occur upon the partial or complete disposition of such investment

Investing in real estate typically involves a moderate to high degree of risk. The possibility of partial or total loss of capital will exist.

Investing in commercial real estate assets involves certain risks, including but not limited to: tenants' inability to pay rent; increases in interest rates and lack of availability of financing; tenant turnover and vacancies; and changes in supply of or demand for similar property types in a given market.

Index information: The following indexes represent investments with material differences from an investment in private real estate credit including but not limited to investment objectives and restrictions, risks, fluctuation of principal, safety, guarantees or insurance, fees and expenses, liquidity, and tax treatment. An investment in private real estate credit is not a direct investment in real estate and has material differences from a direct investment in real estate, including those related to fees and expenses, liquidity, and tax treatment.

Private real estate credit is represented by the Giliberto-Levy High-Yield Real Estate Debt Index (G-L 2), which measures total return and its components for many forms of high-yield CRE debt, such as high-yield commercial mortgage debt performance for high-yield loans, such as mezzanine loans, preferred equity, and B notes.

High yield is represented by the Bloomberg US Corporate High Yield Bond Index, which measures the USD-denominated, high yield, fixed-rate corporate bond market.

Senior loans are represented by the Morningstar LSTA US Leveraged Loan 100 Index, which is designed to measure the performance of the 100 largest facilities in the US leveraged loan market.

Private real estate equity is represented by the NCREIF Property Index (NPI) on the basis that the NPI is the broadest measure of private real estate index returns. The NPI is published by the National Council of Real Estate Investment Fiduciaries and is a quarterly, composite total return (based on appraisal values) for private commercial real estate properties held for investment purposes, including fund expenses but excluding leverage and management and advisory fees. The NPI excludes leverage and, therefore, is less volatile than real estate vehicles, which employ leverage. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors and held in a fiduciary environment. NCREIF data reflects the returns of a blended portfolio of institutional-quality real estate and does not reflect the use of leverage or the impact of management and advisory fees.

Corporate bonds are represented by the Bloomberg U.S. Corporate Value Unhedged USD Index, which measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

Commercial mortgage-backed securities (CMBS) are represented by the Bloomberg US CMBS Investment Grade Index, which measures the market of US Agency and US Non-Agency conduit and fusion CMBS deals with a minimum current deal size of $300mn.

Investment grade bonds are represented by the Bloomberg US Aggregate Bond Index, an index of securities that covers the US investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities, and is subject to credit risk.

Treasuries are represented by the Bloomberg U.S. Treasury Unhedged Index, which measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury. Treasury bills are excluded by the maturity constraint but are part of a separate Short Treasury Index. STRIPS are excluded from the index because their inclusion would result in double-counting.

US equity is represented by the S&P 500 Index, an unmanaged index of the 500 largest stocks, weighted by market capitalization and considered representative of the broader stock market.

Direct lending is represented by the Cliffwater Direct Lending Index (CDLI), which seeks to measure the unlevered, gross of fee performance of U.S. middle market corporate loans, as represented by the asset-weighted performance of the underlying assets of Business Development Companies (BDCs), including both exchange-traded and unlisted BDCs.

Public real estate, bonds, Treasuries, and equities provide ready liquidity and are easily traded. The indexes mentioned above are meant to illustrate general market performance, and it is not possible to invest directly in an index. The prices of securities represented by these indexes may change in response to factors including: the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, and investor perceptions. All indexes are unmanaged and do not include the impact of fees and expenses. Comparisons shown are for illustrative purposes only and do not represent specific investments or the performance of private real estate credit.

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