Private credit Opportunity in real estate credit
Mike Sobolik
December 9, 2025
Real estate Why private real estate lending is growing
Private lender activity in commercial real estate (CRE) has rebounded more sharply than the overall market, nearly doubling its pre-pandemic share of loan originations.
What’s driving it?
- Banks are reducing direct CRE lending partly due to Basel III Endgame proposals and liquidity pressures following failures of regional, niche, and community banks. (Basel III Endgame is the last stage of US regulators implementation of reforms meant to ensure the stability of the banking system.) This has pushed banks toward warehouse lines, which provide loan originators with a line of credit to fund mortgages, allowing banks to issue loans without using their own capital, and note-on-note financing, where a lender provides financing that’s secured by an existing loan. They both help banks maintain indirect real estate exposure while lowering risk-weighted capital requirements.
- Private lenders are filling the gap, offering flexible financing that helps banks achieve indirect exposure.
What’s next?
- Property values are stabilizing after 2½ years of declines, signaling more deal activity.
- Equity transactions are rebounding, creating fresh demand for loans.
- A wave of loan maturities — about $1.3 trillion annually through 20291 — will drive refinancing needs as older loans become reset at higher interest rates.
Bottom line
Private real estate lending is playing an increasingly central role in CRE financing. Regulatory reforms have structurally reshaped bank lending behavior, reducing risk appetite and creating space for private lenders. With property values stabilizing, transaction activity rebounding, and a significant wave of loan maturities on the horizon, current market conditions warrant consideration of private real estate lending.
Important information
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A warehouse line in commercial real estate lending is a short-term credit facility that lets lenders or mortgage originators borrow money to fund new loans before they secure permanent financing or sell the loans. A warehouse line provides a pool of capital from which temporary loans can be made to help close deals quickly. The line is secured by the loans being funded. Once the loans are sold or refinanced, the warehouse line is paid back. Warehouse lines are classified by the Federal Financial Institutions Examination Council (FFIEC) as Commercial & Industrial (C&I) lending and have lower bank reserve requirements than commercial real estate loans.
Note-on-note financing in commercial real estate refers to a structure where a lender provides a loan that is secured by another loan (the “note”) rather than directly by the real estate asset. In other words, the collateral for the new financing is an existing mortgage note, not the property itself. A bank or credit provider lends to an investor or fund that already holds a mortgage note on a property. The new loan is backed by that mortgage note (hence “note-on-note”), creating an indirect exposure to the underlying real estate. This structure is common when banks prefer indirect lending rather than originating new property-level loans, especially in tight regulatory environments.
Basel III is a set of banking sector reforms published by the Basel Committee on Banking Supervision.
Investments in real estate-related instruments may be affected by economic, legal, or environmental factors that affect property values, rents or occupancies of real estate. Real estate companies, including REITs or similar structures, tend to be small and mid-cap companies and their shares may be more volatile and less liquid.
The opinions referenced above are those of the author as of Dec. 22, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
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