There’s Been a Big Shift in the Commercial Real Estate Capital Markets

Conventional wisdom suggests that as banks return to commercial real estate lending, private credit should begin losing market share.

Yet, the data tells a very different story.

According to the Mortgage Bankers Association (MBA), banks originated $455 billion of commercial real estate loans during the first quarter of 2026 alone, representing an 80 percent increase from the prior year. At the same time, private market lending surged 133 percent, while overall commercial and multifamily borrowing increased 52 percent year-over-year.

At first glance, those figures seem contradictory. If banks are back, shouldn’t private lenders be retreating?

The answer lies in a structural shift that has occurred within commercial real estate capital markets. Increasingly, banks and private lenders are not competing with one another — they are working together. 

Banks today routinely provide note-on-note financing, back-leverage facilities and A notes to private lenders. Put differently, banks are supplying the bulk of the balance sheet, while private lenders provide flexibility and creativity — together providing borrower solutions and growing the overall lending pie.

The result is not a transfer of market share from one group to another. Instead, it is an expansion of the overall lending ecosystem.

One explanation for this phenomenon comes from an unlikely source: a 19th century economic theory known as Jevons Paradox.

Traditionally applied to energy consumption, and more recently to artificial intelligence’s adoption, Jevons Paradox suggests that as a resource becomes more efficient and accessible, overall consumption often increases rather than decreases. Greater efficiency does not reduce demand. Instead, it expands it.

Something remarkably similar is occurring in commercial real estate finance today.

As the combination of bank capital and private credit has created more efficient financing solutions, the availability of capital has expanded, and more projects have become financeable. Rather than replacing traditional lenders, private credit has helped increase the overall amount of lending activity taking place throughout the market. 

The impact is visible across the industry. 

To give some context on the market’s backdrop, commercial real estate fundamentals remain mixed. To borrow from Dickens, it is simultaneously the best of times and the worst of times. 

Consider multifamily housing. According to CoStar, over the last year the Northeast and the Midwest posted rent growth of 1.3 percent and 2 percent, respectively, while the Sun Belt and the Mountain West — long considered the industry’s growth engines — experienced rent declines of 0.8 percent and 1.7 percent.

Yet, despite an uneven operating environment, projects continue moving forward, powered by a robust credit environment that is lifting all boats and providing a safe harbor against distress.

Most people would be surprised to learn that construction starts increased approximately 23.5 percent year-over-year, while permit issuances rose 10.7 percent, according to the U.S. Census Bureau. These gains suggest that capital availability continues to unlock projects that may otherwise have remained dormant.

The growing collaboration between banks and private lenders is arriving at a particularly important moment. According to the MBA, approximately $875 billion worth of commercial mortgages are scheduled to mature in 2026. As borrowers navigate this wave of refinancings, the ability to access both traditional bank capital and private credit solutions is expanding the universe of available financing options. 

Construction lending offers perhaps the clearest example of this evolution.

Private lenders accounted for approximately 34 percent of all construction financing in 2025, up from 30 percent in 2024, 20 percent in 2023 and an average of roughly 9 percent in the years following the Global Financial Crisis. 

That growth reflects more than capital availability. It reflects borrower preference.

Today’s borrowers increasingly value certainty of execution, flexibility and speed alongside pricing. More importantly, many are pursuing business plans that do not fit neatly within traditional lending boxes. A borrower navigating a lease-up, construction completion, office repositioning, recapitalization or other transitional events often require a lender willing to underwrite future value. In many of these situations, private lenders can provide solutions that traditional banks either cannot — or choose not — to offer.

As a result, private credit has evolved from a niche alternative into a core component of the commercial real estate capital stack.

This flexibility has had implications beyond origination volume.

One of the more surprising characteristics of the current cycle has been the relative lack of distressed asset sales. Following the Global Financial Crisis, distressed transactions surged to approximately 20 percent of overall sales activity. During the recent cycle, distressed sales peaked at roughly 3 percent of transactions in mid-2025.

While many factors contribute to that difference, the increasingly collaborative relationship between borrowers, banks and private lenders may be part of the explanation. Flexible capital structures often create opportunities for extensions, workouts and restructurings before distress reaches the point of a forced sale. 

The real story of private credit is therefore not found in predictions of its rise or forecasts of its demise.

It is found in the projects that secured financing, the developments that moved forward, and the borrowers who continued operating despite a challenging market backdrop.

As banks continue returning to commercial real estate and private lenders continue expanding their role, the question is no longer whether private credit belongs at the table.

The more interesting question is how large a seat it will occupy during the next cycle.

Jeff Rosenfeld is managing partner at real estate credit manager North River Partners.