Bridging the Gap: Private Credit’s Expanding Role in Commercial Real Estate Finance
Introduction
The start of 2026 finds commercial real estate (CRE) at a critical financing juncture. Traditional lenders, especially banks, have retrenched amid higher interest rates and stricter regulations, leaving many borrowers scrambling for capital. Into this void has stepped private credit – the sprawling market of non-bank loans, private debt funds, and other “shadow” lenders – which has grown dramatically in recent years. Global private-credit assets under management (AUM) roughly doubled over the past five years to about $3 trillion by mid-2025, fueled by institutional investors seeking yield in a low-rate environment. Much of this capital has been channeled into real estate debt strategies, as yield-hungry funds spot opportunity in financing properties when banks will not. In short, private credit is increasingly bridging the gap in CRE finance, offering new lifelines to projects – but also raising new considerations for market stability.
The Rise of Private Credit in CRE
What began as a niche has become a mainstay of the CRE market. Alternative lenders such as debt funds, mortgage REITs, and private equity credit vehicles now routinely finance deals that once relied on bank loans. According to CBRE, by Q4 2024 these non-bank lenders accounted for 23% of all non-agency CRE loan closings, with debt fund origination volume up 72% year-over-year. In other words, nearly a quarter of new real estate loans (outside of government-backed channels) are now made by private credit providers rather than traditional banks. This rapid growth reflects both push and pull factors: banks have pulled back, and private capital has pushed in to fill the gap.
Why is private credit booming in CRE? A few key drivers stand out:
Bank Retrenchment: Stricter capital rules and market volatility have led banks to curtail direct real estate lending, creating a financing void. Major U.S. banks have decreased their CRE loan exposure, even shifting to indirect roles (like providing warehouse credit lines to debt funds) rather than originating loans themselves. This retreat has left many viable projects in need of funding beyond what cautious banks will offer.
Investor Demand for Yield: Institutions such as pension funds, insurers, and family offices have poured money into private debt funds in search of higher yields and portfolio diversification. In the U.S., private credit AUM (across all sectors) hit $1.34 trillion by mid-2024, indicating huge capital availability. These investors are drawn by the elevated interest spreads available on private real estate loans relative to bonds or core real estate – effectively earning a premium for stepping into a less crowded lending space.
Borrower Need for Flexibility: Real estate developers and owners facing challenging projects or tight timelines value the speed and creativity that private lenders can provide. Debt funds excel at tailoring loans for complex, transitional situations (e.g. construction, heavy renovations, lease-up bridges) that traditional banks shy away from. Borrowers who might not qualify for a conventional bank loan can secure capital from private lenders willing to underwrite story deals or higher-risk profiles – albeit at a higher cost.
In combination, these forces have propelled private credit to the forefront of CRE finance. Industry observers note that investor-driven lenders (funds, REITs, finance companies) have significantly grown their market share of new CRE loan originations in 2025. Real estate private credit fundraising is surging – by early 2025, roughly one-third of all new real estate investment fundraising was earmarked for debt strategies, a remarkable shift indicating that many investors see real estate lending as the opportunity of the moment. Simply put, private credit is no longer an “alternative” in CRE; it is becoming central to getting deals done.
Filling the Financing Gap: The CRE “Maturity Wall”
One timely trend driving private credit’s rise is the looming wall of maturing CRE debt. After a decade of cheap money, hundreds of billions in commercial mortgages are coming due in 2025–2026. This includes approximately $600 billion of loans on bank balance sheets and $169 billion in CMBS (commercial mortgage-backed securities) reaching maturity by the end of 2026. Refinancing these loans has proven challenging. Property values have softened in many sectors, and interest rates are far higher now than when much of this debt was originally underwritten. Even if rates dip below 6%, analysts estimate roughly 15% of maturing securitized mortgages could fail to qualify for full refinancing due to insufficient cash flow coverage. In segments like office – particularly in markets where values fell post-pandemic – a significant share of loans face shortfalls, and some borrowers may struggle to “refinance out” without restructuring.
This is where private credit has stepped in as a pressure valve for the market. Tighter bank lending standards and cautious bond markets mean many borrowers have nowhere to turn except private lenders. In response, debt funds and other non-bank lenders are increasingly filling the gap for refinancing and transitional capital. These private lenders are providing lifelines through bridge loans, mezzanine financing, preferred equity infusions, and other creative structures to recapitalize properties and keep them afloat. Crucially, they are doing so at a price – demanding higher interest spreads and stronger equity cushions to compensate for the risk. For example, a debt fund might offer a short-term bridge loan to replace a maturing bank loan, but the interest rate could be several percentage points higher than the previous debt. Borrowers accept these terms because the alternative may be a fire sale of the asset or default.
The bridge financing boom is especially notable in markets and property types under stress. Sponsors with office buildings in New York City or Chicago, for instance, have turned to private lenders for capital to cover tenant improvements and buy time for leasing, since banks are extremely conservative on office exposure. In healthier sectors like multifamily or industrial, private credit is enabling acquisitions and ground-up developments to proceed even when bank construction loans are scarce. By “playing offense” when traditional lenders play defense, private credit funds have prevented a larger credit crunch in CRE. In the process, they have gained not just market share but deeper relationships with borrowers and brokers who increasingly view these funds as go-to sources of capital.
Benefits to Investors and Borrowers
The embrace of private credit in real estate comes with distinct advantages for both the capital providers (investors/lenders) and the capital users (borrowers):
Attractive Yields for Investors: Private real estate loans typically offer higher yields than comparable public-market instruments, reflecting the liquidity premium and complexity of these deals. New first-mortgage loan originations by debt funds often carry interest in the high single digits or low teens (annualized), well above corporate bond yields. In a higher-for-longer rate environment, private credit investors continue to earn elevated income. Moreover, lending on property assets can serve as a portfolio diversifier and even an inflation hedge, since real estate collateral and floating-rate loan structures help returns keep pace with rising prices. These risk-adjusted returns have attracted significant institutional capital into the space.
Flexible, Creative Financing for Borrowers: Unlike one-size-fits-all bank loans, private credit offers bespoke financing solutions tailored to a project’s needs. Debt fund lenders are often willing to underwrite story deals – for example, a bridge loan on a non-stabilized property with a plan for lease-up or renovation – that traditional banks would decline. They can structure loans with features like interest reserves, mezzanine tranches, or participations in upside, providing capital stacks that close funding gaps. Borrowers also benefit from speed and certainty of execution: private lenders, unencumbered by lengthy committee approvals, can often move from term sheet to closing faster, an edge in time-sensitive transactions. In hot markets (say, acquiring a value-add apartment in Miami or Dallas on a short timeline), this agility is invaluable.
Collateral and Downside Protection: From a lender’s perspective, real estate private credit can be defensive in nature. Loans are secured by hard assets – buildings and land – that provide tangible collateral value. Typical loan-to-value (LTV) ratios for senior real estate loans might be 60–70%, meaning there is a substantial equity buffer beneath the loan. That equity cushion helps absorb losses if a project underperforms, giving the lender a degree of protection that unsecured corporate loans lack. Additionally, private CRE loans often include covenants or reserves tailored to the asset’s cash flow (even if looser than bank loan covenants), which can give lenders more control in the event of trouble. For investors, this collateral-backed, senior position offers comfort that even in a downturn, recoveries may exceed those of riskier equity investments.
In short, private credit fills a need on both sides of the table. Investors gain access to higher yields and structured protections in sectors they know (many debt fund teams have deep real estate expertise), while borrowers gain access to capital that is custom-fit to their business plan. The growth of this financing avenue has undoubtedly kept deals alive and projects funded through a volatile period.
Risks and Challenges to Monitor
While private credit is proving its value in CRE, it is not a free lunch – there are notable risks and potential downsides for the market to consider. Illiquidity is one fundamental issue. The same features that allow private credit funds to be patient (closed-end vehicles with 5–10 year lockups) mean that investors in these funds cannot easily redeem their money. If market conditions sour, the lack of an exit can be painful; secondary markets for fund interests are thin and often at big discounts. Even newer open-ended private debt funds that promise periodic liquidity impose strict limits and gates on redemptions, so in practice investor money is largely stuck until loans run off. For institutional allocators, this illiquidity is acceptable when performance is strong, but it could become a sore point if credit losses rise.
For borrowers, the cost of capital in private credit is substantially higher than traditional financing. Debt fund loans carry higher interest rates and fees, which can strain project economics. The reason these lenders can step in is precisely because they charge a premium for the added risk. Developers must weigh whether the flexibility is worth the expense – in some cases, taking an expensive bridge loan only delays an inevitable reckoning if the asset’s value or income stream doesn’t pan out. Moreover, some private loans come with shorter maturities or extension risk, meaning borrowers may have to refinance again in a few years, hoping that market conditions improve.
From a systemic perspective, the private credit boom remains largely untested in a full credit cycle. Much of the $3+ trillion in private credit (across corporate and real estate) has been built up in an environment of low defaults. As analysts caution, the true resilience of this market may only be revealed in the next downturn. There are early warning signs: rising delinquencies on certain debt fund portfolios and write-downs on private loans suggest cracks in underwriting for the most aggressive deals. Unlike banks, which are heavily regulated and must reserve for losses, private credit funds operate with more opacity. If defaults climb, funds might face tough choices – extend loans and pray, or enforce remedies (foreclosure, taking ownership) which they are equipped to handle but which could flood them with real estate assets. In either scenario, a wave of credit stress could force some private funds to mark down asset values, potentially shocking investors who hadn’t realized how much risk they were bearing.
Lastly, there’s the broader economic risk that private credit’s rise contributes to excess leverage in the system. By stepping in where banks pulled back, are private lenders propping up deals that otherwise would reprice lower? Some industry experts worry that easy private money could be enabling a form of “extend and pretend,” delaying an efficient correction in property values. If that’s the case, the shakeout – when it comes – could be more abrupt. Regulators are certainly paying more attention to non-bank lending, though policies remain lenient for now. For all these reasons, participants in this market need to practice careful due diligence, realistic underwriting, and robust risk management. The flexibility of private credit is only a strength if paired with discipline; otherwise, today’s solution could become tomorrow’s problem.
Regional Perspectives: NYC, Miami, Dallas, Nashville
Private credit’s impact on commercial real estate can be seen vividly in key regional markets across the United States, from the mature streets of New York City to the booming Sun Belt cities like Miami, Dallas, and Nashville. Each market illustrates a different facet of how alternative capital is shaping outcomes:
New York City: The nation’s largest real estate market is at the epicenter of the refinancing crunch. NYC’s sheer scale means it faces an outsized refinancing risk – a wave of 2015–2017 vintage loans on Manhattan offices and hotels come due by 2026, many now underwater on value. Traditional lenders have become extremely cautious on office properties, so owners of older or struggling buildings are turning to private lenders for rescue capital. We’ve seen debt funds provide mezzanine loans or preferred equity to help recapitalize iconic Manhattan towers, or finance conversions of obsolete office buildings to residential use (a trend encouraged by city incentives). The bright side in New York is that a deep pool of private and institutional capital is actively seeking opportunities, even in distress. Creative financing from non-bank sources is enabling deals like office-to-residential conversions and major lease-up investments that keep New York’s real estate ecosystem moving. As a barometer for high-density urban markets, NYC relies on private credit now more than ever to navigate its reset and recovery.
Miami: Few markets have as much momentum as Miami, and private capital is rushing in. South Florida’s explosive growth – fueled by population and corporate in-migration – has made Miami one of the top targets for institutional real estate investment in the country. Traditional lenders have some exposure here but often can’t keep up with the breakneck pace of development and deal-making. Private credit funds are aggressively financing Miami projects, from bridge loans on new multifamily towers to stretch senior loans on luxury hotels. Investors have taken notice of the returns on offer: capital allocation to Miami CRE hit an all-time high in 2025, and private lenders are enabling acquisitions of warehouses, condos, and mixed-use developments that play into Miami’s growth story. The city’s rising rents and values help justify the higher rates on private loans – sponsors are betting on continued NOI growth to bail out the costly debt. Of course, unique risks like climate change and insurance costs hang over Miami, but in the near term those are outweighed by the market’s vigor. Expect private credit to remain a key funding source behind Miami’s pipeline of projects, as global investors and lenders alike vie to participate in this “Sun Belt superstar” market.
Dallas–Fort Worth: The Dallas metroplex exemplifies the Sun Belt boom and shows how private credit supports high-growth markets. Dallas leads U.S. metro areas in job and population growth, attracting corporate relocations and fueling demand for everything from industrial warehouses to offices and apartments. Banks are active in Dallas, but even so, the scale of development has opened room for non-bank lenders to play a major role. Debt funds have been financing large construction loans in Dallas’s burgeoning suburbs (like Plano/Frisco), often stepping in when local banks hit their lending limits. Investor appetite for Dallas real estate is sky-high – the metro consistently ranks among the top targets for property investment due to its liquidity and growth prospects. Private credit helps facilitate this by offering supplemental leverage; for instance, a fund might provide a mezzanine loan behind a bank’s senior loan on a new industrial park, allowing the developer to achieve higher leverage and proceed with more projects. The relatively strong fundamentals in Dallas (low vacancies, solid rent growth) make it a favorable environment for private lenders, who can be confident in the collateral value. Looking ahead, as long as Dallas continues its robust expansion, it will draw both equity capital and private debt eager to finance the next phase of its growth.
Nashville: A rising star among secondary markets, Nashville has emerged as a magnet for real estate investment – and private credit is beginning to support its trajectory. In recent years Nashville has seen extraordinary population and economic growth, translating into booming demand for commercial space. The city is frequently cited as a top-performing market (dubbed a “supernova” market by some analysts) with key metrics outperforming national averages. However, like many mid-size cities, Nashville’s local banks can only finance so much of this expansion. Private debt funds and out-of-state lenders have started to fill financing gaps for Nashville’s development wave. Construction loans for new multifamily projects, bridge loans to reposition older office buildings, and credit facilities for large mixed-use schemes are increasingly coming from alternative lenders drawn to Nashville’s growth story. The appeal is clear: strong job creation and in-migration are boosting occupancy and rents across property types, giving lenders comfort that loans can be repaid through refinance or sale in a few years. Private credit is enabling Nashville developers to capitalize on opportunities quickly – for example, securing land and beginning construction while traditional financing catches up. As long as Nashville’s fundamentals remain solid, expect more non-bank capital to flow into its real estate projects, further propelling the city’s evolution into a major institutional market.
Each of these city snapshots underscores a common theme: private credit adapts to local market dynamics, amplifying booms and providing support in slumps. In booming locales (Miami, Dallas, Nashville), it fuels growth by meeting capital demand that outstrips conservative bank supply. In challenged markets (NYC office), it offers creative lifelines to reposition or stabilize assets. For institutional investors and real estate professionals in New York, Miami, Dallas, Nashville, and beyond, understanding the role of private credit is now essential. These lenders are shaping which deals get done and on what terms – effectively becoming key players in the urban development and investment landscape.
Conclusion and Outlook
As we enter 2026, private credit’s influence on commercial real estate is set to continue expanding. It has firmly established itself as a permanent fixture of the CRE capital stack, not just a cyclical anomaly. The current market environment – recovering but still marked by caution – almost plays into private lenders’ hands: banks remain selective, creating opportunity for those with capital to deploy, yet real estate fundamentals (outside a few troubled niches) are beginning to stabilize or improve. Many industry experts forecast that debt funds and other alternative lenders will capture an even greater share of new loan originations in the coming year, especially for refinancing needs and value-add projects. The pipeline of deals is strong, and numerous funds have “dry powder” ready to lend, having raised substantial cash in 2024–2025 to seize this moment.
That said, the next phase will require disciplined navigation. Both lenders and borrowers must prepare for the eventual tests that will come with time. For lenders, rigorous underwriting – focusing on quality sponsors, sustainable cash flows, and realistic exit scenarios – is paramount to ensure that today’s loans don’t become tomorrow’s losses. For borrowers, using private credit wisely (as a bridge to stabilization or a tool for value creation, rather than a crutch for a failing asset) will distinguish those who thrive from those who stumble. The partnerships between banks and debt funds may also evolve; we could see more collaborative financing structures where banks take the lower-risk senior position and private funds take mezzanine or stretch pieces, sharing risk in ways that marry stability with flexibility. Such cooperation could help mitigate some risks for the overall system.
In sum, private credit in commercial real estate is demonstrating both its power and its pitfalls. It has brought much-needed liquidity and innovation to a financing market in flux, allowing projects to proceed and investors to earn enhanced returns. Yet it also comes with new complexities – a less transparent, less liquid market operating in the shadows of traditional finance. As we attract institutional investors, real estate professionals, and capital markets participants to engage with this trend, we urge a balanced approach: embrace the opportunities private credit affords, but stay vigilant to the risks beneath the surface. If managed prudently, private credit can be a win-win for capital providers and property owners, sustaining the momentum of markets like New York, Miami, Dallas, Nashville and beyond. In an industry defined by cycles, those who adapt and innovate in their financing strategies will be best positioned to succeed in 2026 and the years to come.
Call to Action: Is your institution looking to leverage private credit strategies for your real estate ventures? Sterling Asset Group specializes in asset management and capital markets advisory to help you navigate the evolving debt landscape. Whether you’re refinancing a portfolio in New York City, structuring a new development in Miami, or seeking creative capital solutions in Dallas, Nashville, or other major markets, our team brings deep expertise to tailor the right financing approach. Contact us to discuss how our private credit and capital markets advisory services can support your investment goals and unlock value in today’s market. Let’s start a conversation about positioning your real estate strategy for success in 2026 and beyond.
Disclaimer: This article is provided for informational purposes only. It does not constitute investment advice or an offer to buy or sell any financial instruments. The views expressed are those of the author and reflect information available at the time of writing. Sterling Asset Group, LLC accepts no liability for any decisions made based on this content; readers should conduct their own due diligence and consult professional advisors before making investment decisions