Investment Opportunities in Private Commercial Mortgages

January 2019

Commercial banks and life insurance companies hold the majority of U.S. private commercial mortgages. The substantial organizational infrastructure required to access and underwrite them has limited other institutional investors’ ability to invest in the asset class. With additional commercial mortgage investment vehicles emerging, the asset class is becoming more accessible to a broader range of investors. This increased accessibility has emerged at an opportune time, as many institutional investors, from public and private pension funds to foundations and endowments, remain under-allocated to the sector and are seeking income-oriented strategies. Private commercial mortgages offer multi-asset class portfolios several key benefits, including strong portfolio diversification, favorable risk-adjusted returns, and characteristics that make them attractive for liability-driven investing. Although the commercial mortgage space is somewhat less transparent than other major asset classes, lending platforms that directly source and manage their investments, and have the ability to select the right sponsors, markets, and collateral, are able to achieve risk-adjusted returns that few other vehicles can match.

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