The Macro-Landscape of Real Estate Investing: The Stability and Returns of Private Credit

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The world of real estate investing is in a state of flux. Rising interest rates, a drop in real estate valuations in gateway cities, and the volatility of the stock market have all contributed to a sense of uncertainty. However, amidst this uncertainty, private credit emerges as a potential stabilizer and a source of better returns for your portfolio.

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Rising Interest Rates and Real Estate

Interest rates have a significant impact on the real estate market. As rates rise, the cost of borrowing increases, making it more expensive for people to buy homes. In 2023, the average 30-year mortgage rate in the U.S. stood at 6.67% as of late June^[1]. This high rate has dampened housing market activity, making homes more unaffordable and potentially causing a slowdown in the market.

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Drop in Real Estate Valuations in Gateway Cities

Gateway cities, which are major entry points to countries and often have a high concentration of international and national businesses, have seen a drop in real estate valuations. Owners and lenders are witnessing losses in valuation on prime office properties in these cities^[2]. This drop in valuation is due to a variety of factors, including the rise in remote work and the decrease in demand for office spaces.

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Private Credit and Origination Rate Changes

Private credit has been the fastest-growing segment of the global credit market over the past decade^[3]. Despite the rise in interest rates and the slowdown in M&A financings, demand for private credit is continuing^[3]. This is due to its attractive features such as current yield, floating rates, and a degree of insulation from market volatility^[3].

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Predictability Outside of a Volatile Stock Market

The stock market is known for its volatility, which can lead to unpredictable returns. In contrast, private credit offers a degree of predictability that can be appealing to investors. Even in volatile markets, private credit continues to thrive and increases market share^[4]. This is due to its ability to provide steady returns, regardless of market conditions.

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The Case for Private Credit

Given the current macro-landscape of real estate investing, private credit could be a valuable addition to your portfolio. It offers a level of stability that is often lacking in other forms of investment. Moreover, it can potentially provide better returns, particularly in a climate of rising interest rates and falling real estate valuations.

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Private credit also offers diversification benefits. It is less correlated with public markets^[5], which can help to reduce portfolio risk. Furthermore, it provides exposure to a wide range of sectors and geographies, offering further opportunities for diversification.

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In conclusion, while the current macro-landscape of real estate investing presents challenges, it also presents opportunities. By considering alternative forms of investment such as private credit, investors can navigate these challenges and potentially achieve better returns.

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Please note that this information is not investment, tax, or financial advice, and it may not be suitable for everyone. Always consult with a licensed professional for advice concerning your specific situation.

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[1]: [Bankrate](https://www.bankrate.com/real-estate/housing-market-predictions-2023/)

[2]: [K&L Gates](https://www.klgates.com/Global-Office-Asset-Trends-A-Look-at-2023-and-Beyond-5-22-2023)

[3]: [Macquarie Group](https://www.macquarie.com/au/en/perspectives/2023-trends-in-private-credit-and-direct-lending.html)

[4]: [BDO Insights](https://www.bdo.com/insights/industries/private-equity/bdo-s-7-private-equity-predictions-for-2023)

[5]: [Blackstone] (https://pws.blackstone.com/education-insights/article/private-credit-investing-in-rising-rate-environments/) 

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