Private Credit’s Takeover of CRE Debt: New Gatekeepers, New Terms

The quiet power shift in commercial real estate (CRE) isn’t just about interest rates, cap rates, or vacancy. It’s about who now controls the debt dial.

As bank lending standards tightened after 2020, private credit stopped being the “alternative” and moved directly into the center of the capital stack. What started as gap-filling mezzanine and bridge capital has scaled into senior and whole-loan territory—redrawing pricing, covenants, and execution speed across the market.

The core dynamic is simple: banks pulled back, selectively re-entered, and remain highly constrained in risk-heavy sectors. Private credit raised record capital, built institutional platforms, and began writing the checks that actually close deals. In many niches—transitional assets, complex business plans, policy-exposed markets—non-bank capital now effectively sets the terms.

Before the current cycle, private credit in CRE was typically associated with the edges of the risk spectrum: construction loans, higher-leverage bridge, or rescue capital. Banks still dominated stabilized, lower-leverage lending. But a combination of regulatory pressure, rate shocks, and mounting concern around sectors like office forced banks to shrink risk exposure and tighten boxes. At the same time, private lenders scaled up, launching vehicles capable of writing $100 million-plus loans and acting as a one-stop solution for sponsors facing a refi wall or pursuing new acquisitions.

That shift has created new “gatekeepers.”

Where banks historically filtered deals through relationship history, regulatory guardrails, and broad credit policy, private credit filters through risk-return calibration and speed. Sponsor quality, capitalization, and execution track record matter more than ever. Business plans that once got by with generic “value-add” narratives now need clear milestones, detailed capex plans, and a defensible path to exit. Asset class and micro-market are scrutinized with a sharper pencil—industrial, logistics, data-adjacent, and life sciences often find a warmer reception than commodity office or undifferentiated retail.

As the players change, the terms change.

On pricing, sponsors often face higher all-in coupons than the cheapest bank debt of the last cycle, but that comparison is increasingly academic—many banks simply aren’t lending at scale in challenged sectors. Private lenders also rely more heavily on upfront and exit fees, which can be meaningful when calculating total cost of capital. In exchange, borrowers frequently gain more flexible prepayment options or tailored structures that reflect the true risk profile of the deal.

Covenants have not gone away; they’ve moved and sharpened.

Debt service coverage, leverage, and performance tests are often tighter, with triggers that respond to actual operating performance. Lenders are more likely to build in rights to sweep cash, adjust reserves, or require paydowns if leasing or income lag the business plan. Reporting expectations are higher, with regular operating statements, rent rolls, and capex updates baked into the deal. Where banks leaned on regulation and relationship banking, private credit leans on contract and control.

Structurally, private credit’s edge shows up in creativity.

Whole loans that internally blend senior and mezzanine economics while presenting a single counterparty to the borrower are more common. Unitranche-style facilities and hybrid structures blur the lines between debt and equity, using waterfalls, step-up pricing, and performance kickers to align risk and return. The capital stack may look “simpler” on the surface—fewer lenders at the table—but the documents are tighter, and enforcement paths are often cleaner and faster.

Speed and certainty of execution have become the real premium.

In a market where delayed refinancings and failed closings can be existential, sponsors are willing to pay more for a lender who can underwrite current reality and close on time. Private credit platforms often run shorter decision cycles, can move quickly on complex or transitional assets, and are less constrained by rigid legacy models. That combination—speed plus certainty—has turned them into the go-to gatekeepers for many sponsors facing near-term maturities or time-sensitive acquisitions.

For borrowers, operating as if traditional banks still set the rules is a recipe for frustration. In a private-credit-led environment, sponsors need to show up differently.

Transparency is non-negotiable.

Private lenders can price around bad news; they walk away from surprises. A concise, lender-ready business plan—with clear assumptions, upside/downside cases, and a realistic timeline—matters as much as the pro forma. Sponsors who think like capital stack engineers, rather than just rate shoppers, are better positioned to negotiate whole loans, hybrid structures, and incentive-linked features that actually fit their strategy.

Relationship-building is also changing. I

t’s no longer enough to know “your bank.” Sponsors increasingly need durable relationships with platforms that can support refinancings, acquisitions, and restructurings across cycles. And they need to recalibrate what “good” looks like: in many situations, speed, certainty, and structural fit are worth more than shaving 25–50 basis points off the coupon.

The thesis is clear: as bank lending standards tightened, private credit scaled into the senior and whole-loan space, and by doing so, it rewrote the rules of CRE financing. Banks may re-enter selectively, but in many corners of the market, non-bank capital already sets the reference terms.

The question for sponsors is no longer whether private credit is “too expensive” compared to a world that no longer exists. It’s whether they’re prepared to navigate a landscape where the new gatekeepers control the levers of pricing, structure, and speed—and where the ability to align with those terms may determine who survives the cycle and who doesn’t.

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