The Rise of Private Credit: What Real Estate Lenders and Borrowers Should Know
Goulston & Storrs Director Frank Ditta moderated a panel at the Commercial Observer Institutional Investor & Private Equity Forum, The Rise of Private Credit: New Fund Formation, Institutional Entry & the Evolution of Real Estate Financing. The discussion, alongside other institutional investor and capital markets panels at the conference, offered a candid look at where private capital is flowing and what it means for owners, sponsors, and borrowers navigating today's financing markets. Below are the highlights.
Key Takeaways:
Financing is available for most reasonable deals. With ample private capital raised and needing to be deployed, panelists agreed that nearly any deal with a sound basis can find a bid today, even if at a higher rate or lower leverage than a sponsor initially wanted. Only truly "upside down" situations are struggling to find financing.
Private lenders are winning business on flexibility, not just price. Private capital can structure around a deal's specific needs (B-notes, ABs, hybrid debt-equity structures) in ways that banks, agencies, and insurance companies typically cannot, and is being compensated with a premium for that flexibility.
Banks are back, but selectively. Banks are re-entering the market for free-market multifamily, industrial, high-quality retail, and large, established sponsors. For most other borrowers, private credit remains the more likely source of financing, and banks increasingly act as leverage partners to private lenders rather than pure competitors.
The line between debt and equity keeps blurring. Rather than a traditional split between senior debt and common equity, deals are increasingly structured across a range of loan-to-cost levels, with lenders taking on more equity-like upside in exchange for offering greater flexibility.
Industrial and new Class A multifamily remain the easiest assets to finance, while yield-seeking lenders continue to finance office and land deals where the basis is right. Data centers, senior housing, self-storage, and life science are drawing increasing attention as need-based, less cyclical sectors, with senior housing repeatedly cited as a top pick given demographic tailwinds and reported rent growth of 5-6% year over year.
Institutional capital is re-entering real estate, but selectively. Large institutional investors, including state pension plans and sovereign wealth funds, are increasingly active but favor large separate accounts over commitments to traditional commingled funds, and are placing more weight on actual capital returned (DPI) and demonstrated income growth than on paper performance.
Rate volatility cuts both ways. Renewed upward pressure on the 10-year Treasury is expected to weigh on transaction activity in the near term, but panelists with long track records across market cycles emphasized that volatility itself creates opportunity for private capital that can move quickly and reprice risk.
These themes point to a financing market that remains open for real estate with a sound underlying basis, but one where structure, speed, and relationships matter more than ever.
