📝 The AGM Op-Ed: Why real estate debt deserves a place in today's portfolio
Views from the field with Benefit Street Partners' Head of Real Estate Michael Comparato
COVID, interest rate hikes, a volatile geopolitical environment, a shift to remote or hybrid work, and the AI boom have all tested commercial real estate in recent years.
Could the tide finally be turning?
It appears that real estate markets are recovering. Many investors have been shining a spotlight on real estate equity.
Today’s Op-Ed unpacks real estate debt.
Benefit Street Partners’ Head of Real Estate Michael Comparato has real estate in his blood.
His grandfather started building single-family homes in upstate New York in 1946. He built his first shopping center in 1958. Michael was born into a family where he was on construction sites from a young age. At 13, he was doing landscaping. At 15, he was hanging drywall.
Today, Michael is a Senior Managing Director, Head of Real Estate, and Portfolio Manager at Benefit Street Partners, a global leader in alternative credit that manages over $93B in AUM across multiple credit businesses.
The firm’s commercial real estate activities focus on lending to U.S. middle-market properties, with an emphasis on multifamily and other income-producing assets.
Michael shares his perspective on why he believes the time is now for real estate debt. After all, as Michael says, “it is much harder to make the case that Americans will need fewer places to live.”
Please enjoy this Op-Ed by Michael.
Why real estate debt deserves a place in today’s portfolio
By Michael Comparato, Head of Real Estate, Benefit Street Partners
For the past few years, investors have been pulled in two directions. On the one hand, higher interest rates have forced a broad repricing of assets. On the other, the rise of AI has created enormous excitement, but also a new kind of uncertainty around what it will disrupt.
What happens to office demand, employment patterns, corporate margins and valuations if AI changes the way entire industries operate? The software and business services sectors are at the forefront of that debate.
In this environment, there is a strong case for returning to something more tangible: lending against high-quality real estate, particularly multifamily housing in the US.
Post Covid, commercial real estate has been through a difficult period. Values have adjusted, financing costs have risen, and many borrowers who took on debt in a very different interest-rate environment now face refinancing pressure. But for disciplined lenders, that disruption is ending and now creating one of the more attractive entry points for private real estate debt we have seen in years.
Credit is not equity. As lenders, we do not need to believe that property values will rise sharply from here. We simply need to underwrite the asset, the borrower, the cash flow and the basis at which we are lending. We need our money back plus interest.
Moreover, in today’s market, new loans can often be made at more conservative valuations, with lower leverage, better covenants, and more equity sitting beneath us. That combination is materially different from buying into yesterday’s capital structure at yesterday’s price.
Multifamily is especially compelling. It is not immune from challenges. Some markets have seen a meaningful amount of new supply, and rent growth has moderated from the exceptional levels reached after the pandemic. But the long-term fundamentals remain powerful. The US still has a structural housing shortage. Mortgage rates and home prices have made ownership difficult for many households. Renting remains not just a lifestyle choice, but an economic necessity for a large part of the population.
That matters because multifamily lending is ultimately secured against one of the most essential forms of demand: shelter. Investors can debate the future of office, retail or hospitality. It is much harder to make the case that Americans will need fewer places to live.
There is also an inflation argument that should not be overlooked. Real estate debt is not a perfect inflation hedge, but it has characteristics that can help. Many loans are floating rate. Rents can reset over time. Replacement costs tend to rise when labour, land and materials become more expensive. In a world where inflation has proved more persistent than many expected, those features are valuable.
The diversification benefit is just as important. Many portfolios today are heavily exposed, directly or indirectly, to the same handful of public-market themes: mega-cap technology, central bank policy and the AI trade. Private real estate debt is driven by different factors. Its performance depends on asset-level underwriting, collateral quality, loan structure, local supply and demand, and borrower discipline. That does not make it risk-free, but it does make it different, as can be seen below in its historical correlation to public and private asset classes.
Chart: Private RE Debt Historical Correlation to Select Public & Private Asset Classes
AI only strengthens the case for hard assets. The technology may generate enormous productivity gains, but it also introduces uncertainty around how companies use space, how labour markets evolve and how public markets price future growth. In that setting, real assets with contractual income streams can provide an anchor. They offer exposure to physical collateral and cash flows that are grounded in real-world demand rather than in long-dated expectations.
Of course, selectivity is critical. This is not a call to lend indiscriminately across commercial real estate. The opportunity is in choosing the right assets, in the right markets, at the right basis, with sponsors who have the capital and experience to navigate a more difficult environment. Conservative leverage, strong asset quality and downside protection matter more now than ever.
The refinancing wave ahead will create stress, but it will also create opportunity. Banks have pulled back from parts of the market, borrowers still need capital, and private lenders with experience and discipline can step into that financing gap.
For investors looking for solutions among uncertainty, US commercial private real estate debt offers a combination that is difficult to find elsewhere: income, collateral, inflation sensitivity, and diversification away from the most crowded public and private market trades. At a time when the future feels increasingly intangible, there is a lot to be said for being secured by something real.
Michael Comparato is a Senior Managing Director, Head of Real Estate and Portfolio Manager with Benefit Street Partners, as well as Chief Executive Officer of Franklin BSP Realty Trust, Inc (NYSE: FBRT).
Prior to joining BSP in 2015, Mr. Comparato was Head of U.S. Equity Investments at Ladder Capital. Before that, he was President at Bank Atlantic Commercial Mortgage Capital.
Mr. Comparato received a Bachelor of Science, Summa Cum Laude, from Babson College.
Alt Goes Mainstream’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Alt Goes Mainstream’s work may feature entities in which Broadhaven Ventures or the author has invested in.