Trump Tariffs-Induced Volatility Widens CRE Opportunity for Private Credit

As President Donald Trump’s tariff policy sends continued shockwaves through commercial real estate, private credit may stand to benefit from the volatility.

Even though the U.S. Court of International Trade on May 28 blocked Trump’s unilateral reciprocal tariffs, the issue is far from dead and may ultimately be decided by the U.S. Supreme Court. The trade court decision was one of many twists and turns since Trump’s April 2 “Liberation Day” tariff announcement, with many of the unknowns sidelining banks from financing deals — while generating more opportunities for established private lenders. 

“Private credit has smoothed some of the volatility in the market and I think that [private lenders] like ourselves have been able to take a little bigger market share in general because we have broad product array,” said Josh Zegen, co-founder and managing principal of Madison Realty Capital. “Banks have pulled back in direct real estate lending, so we’re seeing an opportunity to be even more senior in the capital stack and provide products that compete with banks and insurance companies in some ways.”

Zegen noted that Madison Realty Capital and other nonbank lenders have been originating an increasing number of construction financings that are sub-65 percent loan-to-cost — levels previously provided by banks, with banks now facing even more stringent underwriting standards due to regulatory requirements. He stressed that private lenders are better positioned to provide “more customized financing” for some institutional equity investors that are eyeing the long game for certain investments amid the volatility, particularly with continued demand in the multifamily sector. 

Alternative lenders had already begun to gain increased market share in CRE deals in the last three years, with banks sidelined amid higher interest rates and increasing regulatory scrutiny. While some of the big banks began to embrace commercial mortgage-backed securities and balance sheet loans in the latter part of 2024, market unknowns sparked by Liberation Day have once again put the onus on nonbank lenders to fill the lending void.

“It’s a very narrow bandwidth of who these regional banks, community banks and national banks want to lend to right now. So, if private credit didn’t exist, I think we’d be in a much more challenging environment for commercial real estate,” said Greg Friedman, managing principal and CEO of nonbank lender Peachtree Group. “We’ve seen a pickup of more opportunities coming our way where banks are unwilling to finance projects, and the regional banks in particular are really pushing borrowers to pay them off, and that’s forcing the borrower to seek other sources of capital.”

The role of private lenders in 2025 is especially important given that 20 percent ($957 billion) of $4.8 trillion of outstanding CRE loans were scheduled to mature this year, according to data released by the Mortgage Bankers Association in February. Twenty-five percent of the outstanding commercial mortgages ($452 billion) was derived from balance sheet loans originated by banks. 

Friedman noted that a large share of Peachtree’s loans of late are refinances in which banks were unwilling to extend loans issued prior to the steady rise of interest rates in 2022. Coming off an active 2024 in which Peachtree originated $1.6 billion of lending volume, Friedman is projected to achieve more than $2 billion this year based on its current pipeline. 

“The majority of the loans that we’re making right now are due to this wall of debt maturities,” Friedman said. “The borrower in a lot of cases is injecting fresh capital to help pay down the loan so it works for us or we’re comfortable at the current value of the asset to provide a loan to replace the existing debt.”

Banks had begun to reduce their CRE balance sheets going back to the end of the Global Financial Crisis of 2008, and further deleverged when interest rates began to soar three years ago. 

Prior to Trump enacting steeper tariffs this year, banks showed renewed signs of life with balance sheet loans capturing 34 percent of loans in the CBRE Lending Momentum Index for the first quarter of 2025, a 90 percent year-over-year growth. Alternative lenders comprised 19 percent of non-agency CBRE closings, down from 48 percent a year earlier.   

Tariffs and a reality of higher-for-longer interest rates have shifted the dynamics in the second quarter, however.  

The Federal Reserve enacted 11 interest rate hikes out of 12 meetings between March 2022 to July 2023 before a 14-month pause. The central bank then shifted its inflation-fighting policy in late 2024 with three cuts totaling 100 basis points in its final three meetings of last year. The Fed has held borrowing conditions firm so far in 2025 amid economic uncertainties posed by the Trump administration policies regarding tariffs and immigration that could worsen inflation.   

Unknowns with tariffs have permeated the last two months even as Trump agreed to a 90-day pause with most countries on April 9, followed by another 90-day pause with China on May 12 that temporarily suspended a 145 percent tariff. Trump then recommended 50 percent tariffs on the European Union on May 23, causing markets to tumble before. Trump then decided to delay such a move until at least July. 

The volatility in the market has slowed acquisition and development deals, but it also creates opportunities for private lenders to step in with refinances or recapitalizations for property owners faced with higher borrowing costs on loans coming due, according to Michael Lavipour, head of lending at Affinius Capital.

“You have an environment where there’s not a lot of investment sales activity, there’s not a ton of new construction starts because it’s hard to raise equity for construction, and so the only place that you know transactions are really happening are on the recapitalization side,” Lavipour said. “If you look at acquisition activity in 2021 or early 2022 before rate hikes and value declines, much of that was done with floating-rate debt and at tight cap rates. All of that needs to be recapitalized or refinanced right now, so that’s a huge pipeline of transactions that really only private credit can fill.”

In addition to increased lending opportunities for recaps and refis, private credit is also expanding in large part to an increasing number of banks looking to partner with alternative lenders for note-on-note financing, according to Lavipour, whose team has expanded this practice over the past 12 months. Lavipour said more regional banks are focusing primarily on note-on-note financing as a way to reduce overhead and obtain capital relief. 

Friedman said partnering with banks on note-on-note financing or selling outstanding loans has become an increasing element of Peachtree’s credit business. He noted that regional banks, which have roughly one-third of their balance sheets exposed to CRE assets compared to around 7 to 8 percent with national banks, are in particular turning to private credit in times of market dislocation. 

“I would say the majority of the loans that we originate today we’ll turn around and we’ll have one of the regulated banks that will do note-on-note financing, or they will provide some type of facility that will be set up to back-leverage the loans that we originate,” Friedman said. “We’re seeing an uptick of banks that are actually selling us loans and then back-leveraging because these are still good assets that are facing this decrease in values that is potentially tripping up maybe a debt service coverage ratio or a loan-to-value radio.”

Prior to the economic uncertainties that took hold early this year, banks had started to provide stiffer competition for alternative lenders in late 2024, offering cheaper forms of capital thanks to being government-leveraged, according to Manish Shah, senior managing director at Palladius Capital Management. That dynamic began to shift, however, as unknowns about tariffs, interest rates and labor costs for construction began to creep in. That led many banks to look at more macro trends before deciding what deals to pursue. 

Shah noted that in times of market dislocation, where there are concerns about potential cost overruns for construction projects, a more “nuanced approach” by private lenders can be attractive to borrowers seeking capital.   

“The uncertainty makes some lenders shut down — typically the commercial banks — and makes developers more cautious, and they want to actually go with a lender that understands their business plan,” Shah said. “I think that’s our greatest edge is that they can actually have a discussion with us, and then we can come up with the right duration and the right reserves.” 

The U.S. Court of International Trade decision added another layer of uncertainty to the CRE market with Trump’s tariff policies now likely headed for an appeals process while the administration also explores other tools to enact them.  

As the market remains unsettled, more entrenched private lenders such as Madison Realty Capital, which formed in 2004, will likely see a boost in volume this year even while the investment sales market goes through a dry period amid the volatility, according to Zegen. While Zegen expects private credit to gain market share in 2025, the environment is less ideal for new players trying to enter the space. 

“The uncertainty in the market if you’re a new entrant into private credit or newer funds makes it harder to fundraise today,” he said. “The established players will gain more market share, both from a borrower standpoint and from an investor standpoint globally.”