In order to ensure optimal catalysis of chemical reactions, it is imperative that the chemical properties of both reactants and products be kept in mind. This will ensure that there are no unintended complications when it comes to designing such reactions.
In the reaction, the reactants can be easily dissolved in ethanol as its polar groups are masked. But the dipeptide product will not be soluble leading to its precipitation. The precipitated product may lead to coating of the catalyst. So pure ethanol as a solvent will give poor yield.
Even though the dipeptide product is soluble in water, it also cannot be used as a solvent as it will also give poor yield. This is because the starting material is poorly soluble in water and may cause coating of the catalyst thus rendering it inactive.
In order to obtain a quantitative yield, it is important to use mixture of ethanol and water which is capable of dissolving both the starting material and the ionic product. This will ensure that no precipitation takes place, and hence the catalyst will not be compromised in its activity.