Private Credit Dominates CRE Debt Amid Bank Retreat, Higher Spreads

By Majid Radaei, RadCRE · 2026-04-28 · Market Updates

Debt funds and private credit lenders are increasingly filling the void left by traditional banks in CRE, with Q1 2026 data showing a surge in non-bank originations, often at SOFR + 400-600 bps.

Private Credit's Ascendance in CRE Debt Markets

The commercial real estate (CRE) debt landscape continues to undergo a significant transformation, with private credit funds and debt vehicles stepping into the void left by retreating traditional banks. Stricter regulatory capital requirements, lingering concerns over office valuations, and a general tightening of credit conditions have prompted many banks to pull back, creating a robust opportunity for non-bank lenders.

Data from Trepp and the Mortgage Bankers Association (MBA) indicates a sustained trend of non-bank lenders increasing their market share. In Q4 2025, commercial mortgage originations by banks declined by approximately 35% year-over-year, while debt funds and private lenders saw a more modest 5% decrease, highlighting their relative resilience and increasing importance in navigating current market dynamics. This trend accelerated into Q1 2026, with an estimated 40% of all new CRE debt originations coming from non-bank sources, up from roughly 25% just two years prior.

Navigating Higher Rates and Stricter Underwriting

While private credit offers a crucial capital source, it typically comes with higher costs. Current benchmark rates see SOFR hovering around 4.31%, and private debt funds are frequently pricing their bridge loans and transitional debt in the range of SOFR + 300-600 basis points. For instance, recent public reports from funds like Starwood Property Trust and Blackstone Real Estate Debt Strategies (BREDS) show syndicated bridge loans for multifamily and hospitality assets closing at yields in the 9-11% range. This contrasts with more conservative bank lending, which, when available, might be priced at SOFR + 200-300 bps for stabilized assets, but with significantly lower loan-to-value (LTV) ratios and more restrictive covenants.

Transaction examples abound. Earlier this year, DebtX reported that a consortium of private debt funds provided a $150 million bridge loan for the acquisition of a portfolio of select-service hotels in Florida. Similarly, Brookfield Asset Management's credit arm was reported by Commercial Observer to have provided a $200 million refinancing for a mixed-use development in Chicago, underscoring the willingness of these funds to engage in complex, higher-leveraged transactions that traditional banks are shying away from.

The Rise of Specialized Funds and Mezzanine Capital

Beyond senior bridge debt, private credit funds are also actively deploying mezzanine and preferred equity capital. With senior lenders often topping out at 55-65% LTV, these subordinate layers fill crucial gaps in the capital stack. Mezzanine financing typically commands rates in the 12-18% range, reflecting its higher risk profile and junior position to senior debt. KKR's real estate credit platform, for instance, has been particularly active in this space, recently closing a preferred equity investment in a Las Vegas multifamily project to recapitalize a struggling sponsor. This trend is allowing for the execution of value-add and opportunistic strategies that would otherwise be starved for capital in today's environment.

RadCRE Perspective

"The current environment for CRE debt is a double-edged sword. On one hand, the retreat of traditional banks has created a significant funding gap, pushing sponsors toward private credit. For assets with compelling business plans – particularly in hospitality, value-add multifamily, and well-located retail – debt funds are providing essential financing. We're seeing bridge loans for transitional assets consistently priced at SOFR + 400-550 bps, which while higher than pre-2022, is the cost of doing business today if you want to execute a value-add strategy. What's often overlooked by less experienced sponsors is the importance of the loan structure beyond just spread – things like extension options, interest reserves, and future funding tranches are paramount. At RadCRE, we’re continually structuring deals that blend senior bank debt – where available and competitive – with opportunistic private credit, or even hybrid capital stacks that include preferred equity to bridge the equity gap and optimize the all-in cost of capital. It's about strategic capital stack engineering more than ever. We're also closely monitoring the CMBS market, where spreads, while improving from their wider 2023 levels, are still T + 150-300 bps for core assets, reflecting the broader market's lingering risk premium. Savvy investors are finding opportunities, but you need a sophisticated financing partner to navigate the complexities." Majiid Radaei, Founder of RAD Commercial Realty, notes.

Outlook and Implications

The sustained presence of private credit is reshaping CRE investment strategies. While it offers liquidity, the higher cost of capital necessitates stronger underwriting and clearer pathways to value creation for sponsors. For investors, understanding the nuanced terms and risk profiles of different private debt providers is critical. As traditional banks continue to manage their portfolios and adjust to Basel III endgame proposals, private credit's role is expected to solidify further, becoming a permanent fixture in the CRE financing ecosystem rather than just a temporary solution.

Tags: commercial real estate financing, private credit, debt funds, bridge lending, CRE capital markets

Sources: Trepp, Mortgage Bankers Association (MBA), Starwood Property Trust, Blackstone Real Estate Debt Strategies (BREDS), DebtX, Commercial Observer, KKR