By Belinda Bible, COO, Corval Avenue

Real Estate Exposure in Your Portfolio: REITs vs. Real Estate Private Credit

Investors are increasingly seeking diversified exposure to real estate within their portfolios. While the benefits and drawbacks of direct property ownership are well understood, there is growing interest—and sometimes confusion—regarding the distinctions between Real Estate Investment Trusts (REITs) and real estate private credit. This trend is partly driven by the rising accessibility of private credit funds through listed structures such as ETFs and LICs. Although these vehicles may appear similar to listed REITs in terms of ease of trading, they represent fundamentally different investment propositions.

Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) owns, manages, and operates income‑producing real estate. These assets may include residential apartment complexes, master-planned communities, office towers, shopping centres, industrial facilities, warehouses, or data centres. Well‑known ASX-listed examples include Mirvac, Dexus, Vicinity Centres, and Scentre Group.

Purchasing units in a REIT gives investors equity exposure to the underlying operating entity. As equity securities, REITs tend to exhibit share-market characteristics,  including  broader equity-market volatility, sensitivity to market sentiment, and responsiveness to interest rate movements. They are generally highly liquid, and while they may offer the potential for capital appreciation, they also typically rank behind debt in the capital stack and therefore may provide limited downside protection in adverse conditions.

Returns from REITs typically come from several sources:

• Rental income, which many REITs are mandated to distribute—often 90% or more—to unitholders.
• Capital appreciation arising from re-valuations or the eventual sale of assets.
• Operational and strategic growth within the company.

As a result, REITs may offer attractive yields and growth potential, but with an inherently different risk/return profile to some other real estate related investments.

Real Estate Private Credit

Real estate private credit involves lending to property owners or developers, and therefore sits in the debt portion of the capital structure. For example, while a REIT may build or own a residential development, a private credit fund may finance such projects by providing loans secured against the underlying real estate.

Investments in real estate private credit can exhibit characteristics often associated with fixed-income assets, including:

• Lower volatility compared with listed equities
• Contractual interest obligations
• Seniority in the capital stack, offering greater downside protection

Private credit investors generally expect to receive a predetermined return—principal plus interest — if the borrower performs in accordance with the loan terms. Unlike equity holders, credit investors do not participate in upside gains from increases in property values.  While capital is not guaranteed, secured lenders are typically repaid ahead of equity investors, which can influence recovery outcomes if a loan does not perform.

Is One Better Than the Other?

Both REITs and real estate private credit can play useful roles in a diversified portfolio. The choice between them—or the decision to include both—depends on an investor’s objectives, risk tolerance, and investment horizon. Independent research and professional financial advice should be considered before making an investment decision.

Investors may wish to assess suitability by considering questions such as:

• What is your investment time horizon and how important is liquidity?
  (Although publicly traded, both REITs and private credit funds are ultimately backed by inherently illiquid assets, which may influence pricing.)
• Are you seeking long‑term capital growth, or are you prioritising income?
• How comfortable are you with stock‑market volatility?
  (REITs tend to be more volatile, whereas private credit  outcomes are more closely linked to borrower performance, collateral values and recovery processes.)

Conclusion

In an environment where some investors are seeking income streams and diversification beyond traditional equities, real estate private credit is increasingly being considered alongside listed property exposure. Its position as debt within the capital stack, contractual returns, and typically lower volatility make it an attractive option for those aiming to stabilise portfolio income or reduce sensitivity to market swings. While REITs continue to provide exposure to long‑term growth potential, investors may consider whether including private credit alongside them could offer a different risk‑return profile and support their broader investment strategy. As always, careful due diligence and professional guidance are essential in determining the appropriate allocation for your individual circumstances.