Real estate private equity interview card of the day
9 November 2026 · Financing, Returns and Waterfalls
The interviewer asks
Why would a real estate fund hedge a floating-rate loan?
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Most property loans float over a base rate, so a rise in rates cuts interest cover and can breach a covenant even when the property performs well. Lenders often require a hedge for part or all of the loan. A hedge turns rate risk into a known cost, so the fund can protect the covenant and the equity return.
What the interviewer listens for
Rate rise cuts cover
Breach even if property performs
Lenders often require a hedge
Financing, Returns and Waterfalls · INT.EL.1.b: Explain how floating-rate debt is hedged with swaps and caps, test interest cover against a rate shock, and choose a hedge to fit the business plan.
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