Newer Kids On the Block

2025 emerged as a year credit markets finally came roaring back to life after a painful and dysfunctional hiatus following the 2023 regional banking crisis and a persistently high interest rate regime that characterized the first half of the decade. 

But a new landscape had formed in the multiyear pullback of traditional bank lending, as private credit and debt funds established themselves as a $1.7 trillion market for CRE borrowers to tap into. With that, we asked our Lenders what they offer over their bank or nonbank competitors. 

Greg Friedman, CEO at Peachtree Group, a private lender based in Atlanta, told CO that traditional lenders like commercial banks remain constrained by either regulatory pressure or risky balance sheet exposure that restricts their ability to lend at high leverage levels demanded by borrowers — allowing private credit to step into the void of dislocation.  

Beyond even core products like bridge, acquisition, and construction loans, private credit is financing note-on-note purchases and the purchasing of existing loans from banks, he added.  

“In short, private credit is becoming the liquidity engine for CRE,” said Friedman. “It provides flexibility, creativity and execution speed in an environment where those attributes are at a premium.

Pat Crandall, senior managing director in Kennedy Wilson’s Debt Investment Group, argued debt funds have much more flexibility than federally regulated banks to deal with the inevitable surprises inherent in development and construction lending. 

“We can also entertain borrower requests for modifications or accommodations that make business sense, but would be more challenging for regulated banks,” he said. “This is partly why we have done so much repeat business with borrowers.”

Robin Potts, partner and chief investment officer of Canyon Partners Real Estate, pointed to another wrinkle by noting private credit firms such as hers commonly serve as a stretch senior lender or subordinate debt provider and often finance the CRE deals of banks themselves!

“Banks in many cases have transitioned from being direct lenders to borrowers, and prefer working with trusted private credit fund relationships like us in larger relationships,” she said. 

Josh Zegen, co-founder of Madison Realty Capital, also a debt fund, said the growth of subordinate capital markets has created “a unique environment” where firms like his can offer slightly higher proceeds than banks, while also partnering with them via B notes, mezzanine debt, or preferred equity to fill the gap in past and future capital stacks. 

“This allows us to compete across the entire capital stack and engage with both direct borrowers and peers in real estate private credit — many of whom might have been considered competitors in the past,” he said. 

Others like Abbe Franchot Borok, managing director and head of U.S. debt at BGO, spoke to the bespoke solutions vertically integrated debt funds can provide their clients that commercial banks simply can’t provide in their traditional structures. 

“For these more nuanced asset classes (or operationally intensive alternatives like data centers, cold storage or hotels) we rely on the in-house expertise we can across the BGO platform,” she said. “We are proud of our ability to be nimble amid evolving market conditions.” 

That said, those lenders at some of the top global banks argued that debt funds don’t hold all the cards in today’s credit markets. 

Scott Epperson, head of the credit team at Goldman Sachs’ Real Estate Finance Group, said the interconnectively of his global bank allows it to leverage an integrated suite of financing, origination, structuring and risk management activities in ways debt funds cannot. 

Wells’ Fargo Managing Director Pete Cannava said while loan payoffs have been challenging from a balance sheet perspective for banks, large commercial players such as Wells Fargo have captured much of that volume back vis-à-vis their high-powered CMBS and agency businesses.

Others, like Alex Cabria, head of Americas real estate finance at SMBC, pointed to the compression of credit spreads, which have allowed debut funds to offer higher-leverage loans at spreads that were typical for senior credit options just a year ago. 

“It’s a highly competitive landscape once again,” he said. 

Brian Pascus can be reached at bpascus@commercialobserver.com.