Private credit has become one of the fastest-growing sources of commercial real estate financing because it offers borrowers greater flexibility than many traditional lenders. While banks remain a critical part of the lending market, private credit providers have expanded financing options for value-add, transitional, and more complex commercial real estate transactions.
A recent Bisnow article highlighted an important trend: despite the rapid growth of private credit, traditional banks remain deeply involved in commercial real estate lending. In many cases, banks are simply participating differently than they did a decade ago by providing capital that private lenders use to originate loans.
Understanding how this lending ecosystem has evolved helps commercial real estate investors make better financing decisions and identify the capital source best suited for each transaction.
What Is Private Credit in Commercial Real Estate?
Private credit refers to loans made by non-bank lenders rather than traditional financial institutions. These lenders include debt funds, private investment firms, and institutional capital providers that specialize in commercial real estate financing.
Unlike many traditional banks, private credit lenders often have greater flexibility when structuring loans. They may finance transitional properties, value-add investments, lease-up opportunities, adaptive reuse projects, or transactions with more complex business plans that fall outside conventional underwriting guidelines.
Over the last several years, private credit has evolved from a niche financing option into a significant source of capital across nearly every commercial real estate asset class.
Are Banks Still Lending Commercial Real Estate?
Absolutely.
One of the biggest misconceptions surrounding private credit is that it has replaced traditional bank lending. The reality is much more nuanced.
As highlighted in Bisnow’s reporting, many banks continue to play a major role in commercial real estate finance by supplying capital to private credit firms, which then originate loans directly to borrowers.
Rather than viewing banks and private credit providers as competitors, it’s more accurate to view them as complementary participants serving different roles within today’s commercial real estate capital markets.
Commercial real estate lending has become increasingly interconnected, with banks, debt funds, agencies, life insurance companies, and private lenders each serving different financing needs.
Why Has Private Credit Grown So Quickly?
Several market trends have fueled the growth of private credit.
Following increased banking regulations and higher capital requirements over the past decade, many traditional lenders became more selective about the types of loans they originate. Banks remain an essential financing source, but many now focus on transactions that closely match their lending criteria.
Private credit providers have stepped in to finance transactions requiring additional flexibility.
That flexibility often includes:
- Faster underwriting and loan execution
- Customized loan structures
- Financing for value-add or transitional properties
- Higher leverage in select situations
- Creative solutions for complex investment strategies
That flexibility does not necessarily make private credit better than traditional bank financing. In many cases, the additional flexibility (often higher leverage or thinner debt coverage) comes with a higher cost of capital.
When Should Borrowers Consider Private Credit?
The best financing solution depends on the specific investment strategy.
A stabilized multifamily property with long-term occupancy may fit well with a bank, agency lender, or life insurance company. A lease-up, redevelopment, adaptive reuse project, or value-add acquisition may align more closely with a private credit lender or debt fund.
Today’s borrowers have access to financing from:
- Traditional banks
- Regional and national banks
- Agency lenders
- Life insurance companies
- Debt funds
- Private credit providers
Each capital source has different underwriting standards, pricing, loan terms, and risk tolerance. Understanding those differences has become an important part of securing competitive financing.
How Has Commercial Real Estate Lending Changed?
Commercial real estate lending has become increasingly specialized.
Rather than every lender competing for every transaction, today’s capital providers often focus on specific property types, business plans, leverage levels, and borrower profiles.
Some lenders specialize in stabilized assets with long-term fixed-rate financing, while others focus on bridge loans, construction financing, repositioning opportunities, or properties with operational upside.
For borrowers, this creates more financing options—but also makes lender selection significantly more important than it was ten years ago.
Key Takeaways
- Private credit has become a major source of commercial real estate financing.
- Traditional banks remain active participants throughout today’s lending market.
- Different capital providers specialize in different transaction types.
- The lowest interest rate is not always the best financing solution if loan structure limits execution.
- Matching the right lender to the right transaction has become increasingly important.
Frequently Asked Questions
What is private credit?
Private credit refers to commercial real estate loans provided by non-bank lenders such as debt funds and private investment firms.
Is private credit replacing banks?
No. Banks continue to play a major role in commercial real estate finance, often by lending directly or providing capital that private lenders use to originate loans.
Is private credit more expensive?
Often, yes. Greater flexibility can result in a higher cost of capital, but it may also create financing opportunities that traditional lenders cannot accommodate.
Who typically uses private credit?
Private credit is commonly used by investors pursuing value-add acquisitions, lease-up projects, bridge financing, redevelopment opportunities, or other transactions requiring flexible loan structures.
How do borrowers choose between banks and private lenders?
The answer depends on the property’s business plan, leverage requirements, timeline, sponsorship, and long-term investment objectives. Every capital source evaluates risk differently.
Looking Ahead
Private credit is not replacing banks, and banks are not exiting commercial real estate lending. Instead, the lending market is evolving into a broader capital ecosystem where banks, agencies, life insurance companies, debt funds, and private credit providers each serve distinct roles.
For borrowers, that evolution creates more financing options than ever before. It also means selecting the right lender requires more than comparing interest rates—it requires understanding loan structure, execution timelines, underwriting standards, and each lender’s investment strategy.
At Essex Capital Markets, we evaluate financing opportunities across banks, agency lenders, life companies, debt funds, and private credit providers to identify the capital source best aligned with each client’s investment objectives. As commercial real estate lending continues to evolve, matching the right borrower with the right lender has become just as important as negotiating the loan itself.
This week’s Monday Market Moves was inspired by recent reporting from Bisnow examining the evolving relationship between traditional banks and private credit in commercial real estate lending.