Real-Estate Debt Returns Diverged as Equity Recovered

Real-estate debt funds in Europe continued on a stable path of returns in late 2024, in contrast to the volatility seen in pan-European private-equity real-estate funds. The MSCI Europe Private Real Estate Debt Fund Index showed a 3.8% return for the 12 months ending Q3 2024, in line with the single-digit returns seen in recent years. For private-equity real estate, returns have been on a roller coaster. Returns for the MSCI Pan-European Quarterly Private Property Fund Index (PEPFI) peaked close to 18% in Q2 2022 before a market correction turned results sharply negative in 2023. Since then, PEPFI returns have bounced back, reaching positive territory for the first time in over two years in Q4 2024.

Performance varied by strategy

Performance across debt strategies has not been uniform, however. Subordinated-/mezzanine-loan funds were not immune to market volatility. Their 12-month returns turned negative in Q4 2023, driven by haircuts on the value of some underlying collateral. Returns have remained weak since then, with another dip in Q3 2024 to -11.2%. In contrast, funds focused on senior debt have shown stronger and improving returns, rising from 2.2% in early 2021 to 6.7% in Q3 2024.