Interest Rates are Expected to Remain Low

Central Banks have indicated they expect to keep interest rates low for the foreseeable future. U.S. Federal Reserve Chairman Jay  Powell has said he expects the Federal  Reserve to keep interest rates near zero through at least 2023. In early March 2021, the annual yield on the benchmark 10-year U.S.  Treasury note was around 1.5%. The upshot is simple: Today, certificates of deposit and money market funds generate yields close to zero. Diversification in fixed-income investments such as bonds used to reduce risk over time is scarcely more effective than putting money under your mattress.  

That dynamic pushed many investors into real estate debt funds that offer an attractive, viable alternative. They offer the best of both worlds, generating high annual yields—in the 8% to 11% range—with collateralized protection. Their popularity has grown. Private real estate debt funds have doubled in size since 2014 to about $190 billion in assets under management. Managers of this type of real estate investment entered the market when increased regulation after the 2008 recession forced banks to pull back. Developers found it more difficult to secure short-term loans on commercial real estate from traditional banks.

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