This episode is sponsored by Knight Frank and Reed Smith

Back leverage has emerged from the shadows to have its moment in the sun. Not long ago, taking on debt to partly fund loans was a practice frowned upon by many European investors and borrowers. But today, it is increasingly used and accepted.

In this special episode of The PERE Podcast, Jess Qureshi, an associate in Knight Frank’s capital advisory team, and Josh Hughes, a partner at law firm Reed Smith, review the use of back leverage in European real estate finance. How does it work? Who is using it and why? And what are the risks and rewards involved?

Jess lays out the results of Knight Frank’s latest research on the space, which reveals how extensive European lenders’ employment of back leverage has become. Meanwhile, Josh analyzes the technicalities of structuring loan-on-loan and repo line arrangements in the most effective manner. The pair emphasize the crucial importance of alignment between alternative lenders and their back leverage providers.

While it involves increased risk, the pair conclude that using back leverage creates more liquidity for borrowers because it enables lenders to originate more loans while juicing the return on capital achievable for investors in real estate credit markets.