Why Savvy Investors Should Consider Private Debt in Real Estate
You can also read the video's summary below.
In an investment landscape that often feels like a tug-of-war between risk and reward, private debt in real estate offers a unique opportunity for investors to achieve stability and high returns. For those looking to diversify beyond traditional equities and bonds, private debt in real estate provides an intriguing opportunity. This was the focus of Chris and Brock's discussion as they guested on the eQRP podcast, hosted by Matthew Brauer, a platform that offers a self-directed retirement plan allowing individuals to invest in a wide range of assets.
But what exactly makes private debt in real estate so compelling? And more importantly, how does Kirkland Capital Group deliver these benefits in a market filled with complexity? Let’s explore both the asset class and our firm's unique approach, weaving in key points from the video and our firsthand experience.
What is Private Debt in Real Estate?
Private debt in real estate refers to loans made to property owners outside of traditional bank channels. These loans are typically short-term, used for purposes such as acquiring property, refinancing, or bridging a financing gap. Unlike equity investments where the investor takes an ownership stake, private debt investors act more like the bank, earning returns through loan interest while being secured by the property.
Private debt offers a powerful combination of equity-like returns with a lower risk profile. Investors can enjoy high single- to double-digit returns while benefiting from the security of being in the lender's position, often with first lien recourse on the property.
This type of investment is particularly attractive in today’s financial environment, where low-risk, high-yield opportunities are scarce. As Chris pointed out during the webinar, “The fixed income landscape has changed dramatically over the past few years. Finding yield without pushing out on the risk curve is a real challenge for many investors.”
“Private debt investors act more like the bank, earning returns through loan interest while being secured by the property.”
Why Consider Private Debt in Real Estate?
The appeal of private debt in real estate lies in its risk-adjusted return potential. For investors looking to diversify their portfolios, this asset class offers several key advantages:
Principal Preservation: Unlike many investments where the value of the underlying asset can easily decline below the original investment, private debt is secured by real estate, providing investors with a tangible asset to support their investments. A key reason for this principal preservation is that in the capital stack, debt is senior, meaning that the property owner bears the brunt of valuation declines first, as they hold the equity portion of the property.
High Yield: Private debt can generate equity-like returns, typically ranging from 10% to 12%, while maintaining the relative safety of debt. This is comparable to the S&P 500's historical average return of 10.26% (Source: Investopedia). These returns are achievable because private debt operates in areas underserved by traditional banks and lenders.
Low Correlation to Other Assets: Private debt tends to have a low correlation to traditional asset classes like stocks and bonds. This means that adding it to your portfolio can provide diversification, helping to reduce overall volatility of the investment portfolio.
How Kirkland Capital Group Maximizes These Benefits
While the advantages of private debt are clear, not all funds are created equal. Kirkland Capital Group has carved out a niche by focusing on multifamily and commercial property micro-balance loans—typically ranging from $200,000 to $1.2 million—targeting secondary and tertiary real estate markets. This space is often overlooked by larger institutions, allowing us to operate with less competition while delivering consistent returns for our investors.
Here’s how Kirkland Capital Group sets itself apart from other private debt funds:
Niche Focus on Micro-Balance Commercial Real Estate Loans
We specialize in micro-balance commercial real estate loans, granting investors access to a largely overlooked market segment. While loans under $2 million are often considered insignificant by traditional lenders, we focus on these loans, supplying essential capital to property owners and generating high-yield opportunities for investors. “Our niche is small-balance commercial real estate loans,” says Brock. “We’ve seen firsthand how these loans produce solid returns because we’re not competing with Wall Street or larger funds. We focus on what others overlook.”
Institutional-Grade Risk Management
One of the key factors that sets Kirkland apart is its institutional approach to risk management. Brock's background in loan underwriting has been instrumental in shaping our rigorous standards, which he has successfully leveraged to build a robust team and process. Our team of underwriters, all of whom have formal accounting backgrounds, thoroughly analyze and assess loan applications, ensuring that every loan meets our exacting criteria. Furthermore, our comprehensive due diligence process allows us to carefully evaluate each loan opportunity, further mitigating risk and ensuring that our investments are sound and secure. “We don’t chase after risky, speculative investments,” says Chris. “We focus on fully secured, first-lien loans on income-producing properties. No raw land, no construction loans. Just solid, existing properties.” This approach has helped Kirkland achieve its target return of 10-12% while maintaining a strong focus on principal preservation since its inception.
Transparency and Alignment
From the beginning, Kirkland Capital Group has prioritized transparency with its investors. As an audited fund with a third-party fund administrator, Kirkland ensures that its operations meet the highest standards of oversight and accountability. “We were the first investors in our own fund,” says Brock. “So, everything we do is built with the investor in mind because we’re in it too. Our families are still the biggest investors in the fund. Our success is directly tied to theirs.” Transparency is more than just a talking point; it’s a core part of the fund’s operations. Investors are provided with regular updates and reports, ensuring they always have a clear understanding of how their money is being managed.
Boring Can Be Good
While equity investments might get all the headlines for their flashy returns, private debt offers a different, more steady appeal. As Brock puts it, “Fixed income is supposed to be boring. That’s the point. Excitement usually means more risk, and we’re not here to chase after excitement.” By focusing on smaller, stable markets with less volatility, we are able to deliver reliable returns without the drama. “When you invest in private debt through our fund, you’re not looking for wild swings. You’re looking for steady, consistent returns,” adds Brock.
“Our niche space is often overlooked by larger institutions, allowing us to operate with less competition while delivering consistent returns for our investors.”
Is Private Debt in Real Estate Right for You?
For investors looking to enhance their returns and diversify their portfolios, private debt in real estate offers a compelling opportunity. With its combination of principal preservation, high yields, and low correlation to traditional assets, private debt can serve as a cornerstone of a well-rounded investment strategy.
At Kirkland Capital Group, we understand that investing is not a one-size-fits-all approach. That’s why we’ve designed our fund to offer the flexibility and transparency that discerning investors expect, backed by the security of real estate and institutional-grade risk management.
Learn more about how private debt in real estate can fit into your portfolio, explore our offering in greater detail.
Schedule a call with Chris Carsley, Chief Investment Officer at Kirkland Capital Group, to discuss how private debt in real estate can enhance returns for your portfolio. Additionally, download our term sheet for a comprehensive look at our investment strategy, performance, team, and fund highlights.