The Rise of Private Credit in CRE: What Borrowers Should Know

A decade ago, if you needed a loan on a commercial property, the conversation started with a bank. Maybe a life insurance company for stabilized core assets. Maybe an agency lender for multifamily. The cast of characters was short, the structures were familiar, and the gatekeepers were largely the same names that had been writing CRE loans for fifty years.

That world is gone.

Today, a borrower running a competitive financing process for a $20M bridge loan is just as likely to land at a private credit fund as a regional bank, and increasingly more likely. Private credit, the broad category of non-bank, institutionally-funded lenders, has become one of the largest and fastest-growing sources of capital for commercial real estate. For borrowers, this isn't an abstract market trend. It directly changes who you should be talking to, what terms are realistic, and how you should run your financing process.

This post breaks down what private credit actually is, why it has grown so quickly, what borrowers gain and give up by going there, and how to evaluate a private credit lender against the alternatives.

What "Private Credit" Actually Means

The term gets used loosely. In its broadest form, private credit refers to any lending done by non-bank institutions using pools of capital raised from institutional investors (pension funds, insurance companies, sovereign wealth funds, family offices, endowments).

In CRE specifically, private credit shows up as:

Debt funds: Closed-end or open-end funds that originate or acquire CRE loans, typically focused on bridge, transitional, or value-add financing
Mortgage REITs: Publicly or privately held REITs that hold and originate CRE debt
Private equity credit arms: Lending platforms inside firms like Blackstone, KKR, Apollo, Ares, Brookfield
Specialty finance companies: Non-bank lenders focused on specific property types or strategies (hospitality, construction, mezzanine)
Insurance company-affiliated funds: Capital sourced from life insurance balance sheets but deployed through fund structures rather than traditional life co lending

What ties them together is the source of capital (institutional, not deposits) and the absence of bank-style regulation (no FDIC, no CRA requirements, no risk-weighted capital rules).

That last point is most of why this market exists at the scale it does today.

Why Private Credit Has Exploded in CRE

Three forces drove the shift, and they're still active.

1. Bank Retreat

Following the 2023 regional banking stress, banks pulled back hard from CRE lending. Tighter regulatory scrutiny, lower allowable concentrations, higher capital charges on construction and transitional loans, and broader risk aversion all pushed banks to focus on existing client relationships and the most conservative new originations.

The result: a multi-hundred-billion-dollar funding gap between what borrowers needed and what banks would write. Capital has to come from somewhere, and private credit stepped in.

2. Institutional Demand for Yield

On the other side of the equation, institutional investors have been hunting for yield in a world where investment-grade fixed income was, until recently, paying very little. Senior CRE debt at SOFR + 300-400 bps offered investment-grade-like risk profiles with much higher yields. Pensions, sovereign wealth funds, and insurers allocated heavily to private credit funds as a result.

That capital has to be put to work. Funds raise it on three- to seven-year deployment cycles, which means the pressure to originate is constant.

3. Speed and Flexibility as a Competitive Edge

Even before banks pulled back, private credit lenders had carved out a niche by doing things banks couldn't or wouldn't:

Lending on transitional assets that didn't yet hit DSCR requirements
Closing on accelerated timelines (sometimes 30 days or less)
Sizing to as-stabilized value rather than as-is
Tolerating sponsor profiles or property stories that didn't fit a bank credit box
Structuring around complex equity or partnership setups

For borrowers willing to pay a premium, that flexibility was, and is, the product.

Where Private Credit Fits in the Capital Stack

Private credit isn't one thing. It plays in different parts of the capital stack with very different risk and return profiles.

Senior Bridge Debt

The largest and most active part of the market. Private credit funds originate floating-rate senior loans on transitional properties at 65-75% LTV (often expressed as a percentage of as-stabilized value). Typical terms:

Rate: SOFR + 275-450 bps
Term: 2-5 years with extension options
Recourse: Usually non-recourse with carve-outs
Prepayment: Typically open after 12-18 months
Use case: Acquisition with value-add, lease-up, repositioning, or pre-stabilization

This is where the bulk of CRE bridge volume now lives. For a value-add multifamily, lease-up office, or transitional retail deal, the senior debt is more likely to come from a debt fund than a bank.

Construction Lending

Banks remain active in construction, but private credit has grown share aggressively, especially on larger projects, ground-up multifamily, and specialty asset classes.

Rate: SOFR + 350-550 bps
Term: Construction term plus mini-perm options
Leverage: 60-75% loan-to-cost
Recourse: Variable; full recourse common from banks, partial or non-recourse more available from funds at higher pricing

Mezzanine and Preferred Equity

Private credit has long been the dominant source of mezz and pref. With senior leverage tighter, demand for fill-the-gap capital has grown.

Rate: 9-15% all-in for mezz; pref equity often structured at 11-14% with kickers
Position: Behind senior debt, ahead of common equity
Use case: Closing the equity gap on an acquisition or refinance

Whole Loans and Stretch Senior

Some private credit lenders offer "whole loan" structures that combine senior and mezzanine into a single facility at 75-85% LTV. Pricing is blended, structuring is faster than splitting the capital stack, and one lender controls the loan.

Note Acquisitions

A growing private credit subcategory: buying existing CRE loans (often distressed or near maturity) at a discount and either holding for resolution or working with the borrower on a modification. For borrowers, this can mean your loan is suddenly held by a new institution with different incentives than your original lender.

What Borrowers Gain by Working With Private Credit

For the right deal, private credit offers real advantages over bank or agency capital.

1. Speed

A well-organized debt fund can close a senior bridge loan in 30-45 days from term sheet. Some can move faster on a known sponsor with a clean asset. That's meaningfully faster than most banks and dramatically faster than agency timelines.

2. Higher Leverage

Private credit will often go to 70-75% LTV on as-stabilized value, sometimes higher on a strong sponsor and asset. Banks tend to cap at 65% as-is or 65% as-stabilized, with materially more conservative pro forma haircuts.

3. Non-Recourse Standard

Most private credit senior debt is non-recourse with bad-boy carve-outs. For sponsors building a portfolio, this matters more than the rate difference.

4. Flexibility on the Story

If your deal has a wrinkle (a complex partnership, a recent ownership change, an asset transitioning between strategies, a sponsor who's strong but unconventional) private credit lenders are far more willing to underwrite the narrative. Banks underwrite to a checklist. Funds underwrite to a thesis.

5. Deal Certainty

Once a private credit lender issues a term sheet, the closing process is typically more predictable than at a bank. Fewer committee layers, fewer regulatory tripwires, less risk of last-minute repricing.

What Borrowers Give Up

The trade-offs are real, and you should understand them before signing.

1. Higher Rates

Private credit is more expensive than bank or agency capital. The all-in cost of a debt fund senior bridge is typically 75-200 basis points above what a bank would charge on the same deal, sometimes more depending on leverage and complexity.

For a $15M loan, 100 bps over 3 years is roughly $450K in additional interest. That's the cost of speed, leverage, and flexibility.

2. Higher Fees

Origination fees of 1.0-1.5% are standard, sometimes higher. Exit fees are common (often 0.5-1.0% if you refinance away within a defined period). Banks typically charge 0.5-1.0% origination with no exit fee.

3. Floating Rate Exposure

The vast majority of private credit senior loans are floating rate, indexed to SOFR. That means rate cap costs (which can run $50K-$200K+ depending on loan size and strike) are part of your real cost of capital. Banks more often offer fixed-rate options.

4. Tighter Covenants and Reserves

Funds tend to require larger reserves (interest reserves, CapEx reserves, lease-up reserves, debt service reserves) and more aggressive covenants (DSCR triggers, LTV tests, cash management springing events). Read the loan agreement carefully.

5. Shorter Terms

Bridge debt is typically 2-3 years with extensions tied to performance hurdles. If your business plan slips, the extension might not trigger, and you'll be refinancing into whatever the market looks like at maturity. That's a different risk profile than a 5-10 year bank or life co loan.

6. Different Workout Posture

If your deal hits trouble, the workout dynamic with a fund can be different than with a bank. Funds are typically more analytical and faster to act, which can cut both ways. Some are more aggressive about default rights; some are more constructive than banks because they have capital to deploy and can underwrite a modification quickly. Know who you're dealing with.

How to Evaluate a Private Credit Lender

Not all private credit is the same. Two debt funds that look similar on paper can behave very differently. When you're evaluating an offer, dig into:

Capital Source and Stability

Where does the fund's capital come from? Closed-end fund? Open-end vehicle? Mortgage REIT?
Where is it in its investment period? A fund late in its deployment cycle may be more aggressive on pricing but less able to extend or modify later.
Has the platform been tested through a downturn? Track record matters.

Origination Volume and Specialization

Does this lender originate hundreds of loans a year, or a handful?
Do they do your property type and geography regularly, or are you a one-off?
Specialists tend to be faster, smarter, and more constructive than generalists.

Servicing and Asset Management Approach

Who services the loan after close? Some funds outsource; some keep it in-house.
What's the asset manager's posture? Hands-off? Quarterly check-ins? Deeply involved?
This affects your day-to-day experience over the loan term.

Workout History

How does this lender handle stress? Have they restructured loans constructively? Have they aggressively pursued default remedies?
Ask other sponsors who've borrowed from them, especially those who hit a rough patch.

Term Sheet Reliability

How often do they re-trade between term sheet and closing?
A "yes" at term sheet that becomes a "different yes" at closing is a real risk with some lenders.
Reputation in the broker community is informative.

When Private Credit Is the Right Answer

Private credit is the right capital when at least one of these is true:

Your deal is transitional. Value-add, lease-up, repositioning, redevelopment. Banks don't underwrite to pro forma; funds will.
You need speed. 30-45 day closings versus 60-90 days at a bank.
You need higher leverage. 70-75% LTV versus 60-65% at a bank.
Non-recourse is non-negotiable. Banks usually want at least partial recourse on transitional deals; funds typically don't.
Your story needs a thoughtful underwriter. A complex partnership, a turnaround sponsor, a non-standard property type.
You want certainty of execution. Funds typically have less committee risk than banks.

When Private Credit Is the Wrong Answer

Conversely, private credit is overpriced for situations where bank or agency capital can do the deal. Specifically:

Stabilized cash-flowing assets: Life insurance companies and agencies will offer much lower rates with longer terms and fixed-rate certainty.
Long-term hold strategies: A 5-10 year fixed rate from a bank or life co usually beats a 3-year floater plus refinance risk.
Smaller deals: Sub-$5M loans often don't pencil for institutional debt funds, and community banks remain competitive at this size.
Owner-occupied properties: SBA programs and traditional bank loans are typically a better fit.
You can't stomach floating-rate exposure: Even with rate caps, the volatility is real.

The mistake is treating private credit as either "always more expensive" or "always more flexible." It's the right tool for some jobs and the wrong tool for others.

How to Run a Process That Includes Private Credit

If your deal is a fit for private credit, the smartest approach is to compete the financing across multiple lender types. Don't just put it out to three debt funds. Get bank, agency (if applicable), and private credit offers side by side. The structures will differ, but you can compare them on a true cost-of-capital basis.

Five practical steps:

1. Build a Complete Submission Package

A clean rent roll, T-12, sponsor financials, business plan, and pro forma. This is the same package that wins term sheets from any lender, but it's especially important for private credit, where speed of underwriting depends on how quickly the lender can build conviction.

2. Submit to Multiple Lender Types in Parallel

Don't go to two debt funds and assume you've run a process. Get a regional bank, an agency lender (if multifamily), and two or three debt funds engaged at the same time. The structures will be different; that's the point.

3. Compare Total Cost of Capital

Build a side-by-side that includes:

Interest cost over the projected hold
Origination, exit, and structuring fees
Rate cap costs (where applicable)
Reserves and escrow opportunity cost
Prepayment exposure
Recourse exposure as a contingent liability

The headline rate is rarely the right way to choose. A debt fund at 7.5% all-in with non-recourse and 75% LTV can easily beat a bank at 6.5% with full recourse and 60% LTV, depending on your business plan.

4. Negotiate With Real Leverage

When you have multiple credible offers, fund lenders will move on origination fees, prepayment terms, reserve sizing, and covenant levels. Ask specifically.

5. Diligence the Lender, Not Just the Loan

Especially with private credit. Talk to other sponsors who've borrowed from this fund. Ask about workout posture, servicing experience, term sheet reliability. A loan is a multi-year relationship, not a one-time transaction.

What This Means for the Next 12-24 Months

Private credit's share of CRE lending isn't going to retreat. The structural drivers (institutional demand for yield, bank constraints, sponsor demand for flexibility) are durable. Expect:

Continued capital raising at the largest platforms (Blackstone, KKR, Apollo, Ares, Brookfield, Starwood, etc.), with fund sizes growing
More specialization: funds focused on specific property types, geographies, or strategies
Tighter pricing on senior debt as competition intensifies among funds, narrowing the gap with banks
More distressed and special situations activity as 2021-2022 vintage loans hit maturity and need refinancing into a higher-rate environment
More integration with sponsor relationships: funds increasingly act as repeat capital partners, not transactional lenders

For borrowers, this means more options, but also more complexity. The lender universe is bigger and more fragmented than it was even three years ago. The borrowers who win in this environment are the ones who run organized processes, understand the trade-offs, and pick the right capital for the right deal, rather than defaulting to whatever lender they've worked with before.

The Bottom Line

Private credit isn't a niche source of CRE capital anymore. It's a primary one. For transitional deals, deals that need speed, deals that need leverage, and deals where non-recourse matters, debt funds and other private credit lenders are often the best answer.

But "best" depends on the deal. The premium private credit charges for speed and flexibility is real money. On stabilized assets with conservative business plans, banks and life cos still win. On long-term holds, agency and life co fixed-rate debt is hard to beat.

The borrower's job is to know what your deal needs, run a process that gives you real options, and compare offers on total cost of capital and structure, not just rate. The lender universe is bigger than it's ever been. Use it.

Need to compare term sheets across banks, agencies, and private credit lenders? Submit your deal on LenderAve and get matched with lenders across every category, all in one process.

About Debt Fridays

Debt Fridays is LenderAve's weekly blog series delivering practical insights on commercial real estate financing. Published every Friday, we cover everything from lending basics to advanced deal strategies. Subscribe to never miss an issue.

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Tags: Debt Fridays, Commercial Real Estate, CRE Financing, Private Credit, Debt Funds, Alternative Lenders, Non-Bank Lending, Bridge Financing, CRE Capital Markets