Beyond the Hype: Is Real Estate Debt Really a Must in Modern Portfolios?

Hannah Carimi

(5 minute read)

Real estate has long been a cornerstone of investment portfolios. Whether through direct ownership, REITs, private funds, or structured debt investments, investors have used real estate in many forms to anchor long-term wealth strategies. First-position mid-size bridge loans offer a powerful combination of safety, liquidity, and yield that few other assets can match within real estate debt investments. Amid unpredictable market conditions, this high-yield, low-risk asset class is becoming a cornerstone of resilient portfolios, delivering consistent performance, asset-backed security, and protection against volatility.

Real Estate Investment

For generations, investors have relied on real estate as a foundational element in their portfolios. While the asset class remains a constant, the ways investors access it have evolved, and are more diverse than many realize.

Real estate equity is a well-established strategy. Whether through direct ownership, funds, or REITs, equity investments are appreciated for their long-term, strong return potential. However, they remain subject to market fluctuations, economic cycles, and tie up capital for long periods of time.

In contrast, real estate-backed debt stands out for its consistency, particularly during periods of volatility. By lending against real property rather than owning it, investors can earn steady, contractually obligated income secured by tangible assets. These investments tend to be more stable and predictable than equity, and depending on structure and risk level, they offer a reliable way to preserve capital while generating meaningful income across a range of market conditions.

Real Estate Debt

Traditionally, access to real estate debt, especially bridge loans, has been limited to institutions and focused on bigger transactions – in large part due to inefficient legacy reliance on manual processes. However, private debt, already a multi-trillion dollar market, continues to grow. With projections showing another 50% increase over the next five years, private real estate debt alone is expected to surpass $400 billion globally, a clear sign of rising investor appetite for stable, asset-backed income. ⁽¹⁾

At the same time, banks and large institutions are pulling back and tightening lending criteria, leaving a growing gap in the market. The demand for smaller, more flexible bridge financing is accelerating, allowing investors to step in and capture high-quality, high-yield deals in a space that was once difficult to access and grow portfolios.

Bridge Loans in Real Estate Debt

Bridge loans are a long-established and proven real estate debt strategy, valued for their ability to generate strong returns with built-in risk protection. These short-term loans finance transitional properties, such as those undergoing renovation, lease-up, or repositioning, before a sale or permanent financing.

Because they address a specific and time-sensitive need, bridge loans often come with favorable terms for lenders, offering higher yields and strong collateral. Investors rely on them for consistent income, shorter duration, and reduced exposure to long-term market fluctuations.

Unlike equity investments, which depend on future appreciation, bridge loans are tied to current property value and structured with fixed repayment terms, helping insulate capital from broader volatility.

In particular, first-position bridge loans provide repayment priority and asset-backed security. Combined with disciplined underwriting, they offer a compelling mix of protection and performance for credit-focused investors.

The Midsize Loan Advantage

Midsize real estate loans, typically $500,000 to $20 million, occupy a powerful but underutilized segment of the debt market. Not because they are riskier, but because they sit outside the scope of traditional lending channels: too large for many direct private peer-to-peer deals, too small for many institutions. This gap creates pricing power for well-positioned lenders. 

Critically, midsize assets offer more liquidity than most realize. Smaller multifamily and mixed-use properties can be sold or repositioned more quickly than larger, more complex assets, making them a smarter choice in uncertain markets. For investors, this means access to high-quality, collateral-backed loans with lower risk, better returns, and real flexibility.

Conclusion

In the real estate debt landscape, midsize loans represent a uniquely attractive segment for investors. With approximately $4.5 trillion in outstanding commercial real estate loans tied to income-producing properties ⁽²⁾, the depth of the market is clear; however access and performance vary widely depending on the niche.

First-position debt is typically known for safety, not high returns. Yet today, the only place where investors can access both low risk and high returns lies in the midsize bridge loan segment. Due to structural inefficiencies, institutional capital remains concentrated in large bridge loans, leaving the midsize space overlooked, but not underperforming. On the contrary, this underpenetrated segment is producing some of the most compelling risk-adjusted returns available in first-position real estate credit.

In a shifting investment landscape, real estate-backed debt offers a rare combination of strength, consistency, and strategic flexibility. With its ability to preserve capital while generating meaningful yield, it plays a vital role in modern portfolio construction. In an era defined by uncertainty, this asset class offers what few others can: clarity, control, and confidence.

Sources: 

1  Preqin, PGIM Real Estate (as of November 2024).

2 Cohen & Steers