Beyond the Bank: How Private Credit Funds Are Powering CRE Deals in 2025

Introduction: Traditional banks have long been the primary source of commercial real estate loans. But in 2025, a notable shift is underway: private credit funds and non-bank lenders have moved from the sidelines to center stagein CRE finance. Facing tighter regulations and risk limits, many banks have pulled back, creating an opening that private lenders are eagerly filling. For brokers and real estate professionals, this means that an “alternative” to bank loans isn’t just a backup plan – it’s often the first stop to finance a deal.

This article examines why private credit has become so prominent, how these lenders differ from banks, and what it means for getting commercial deals done. We will compare key features of bank vs. private loans and illustrate situations where a private credit fund can be the superior choice (or sometimes the only choice). By understanding this landscape, brokers can better serve clients in a capital-constrained world.

The Rise of Private Credit in CRE

Private credit in real estate refers to financing from non-bank sources – like debt funds, mortgage REITs, private equity firms, insurance companies, and family offices that provide loans (debt) rather than equity. This sector has exploded in recent years:

• A $1.7 Trillion Market and Growing: Private credit is no longer niche; it’s huge. Globally, private credit AUM (assets under management) hit about $1.7 trillion by 2025 and is projected to double by 2030. Much of this is targeted at real estate or asset-backed lending. This growth is driven by investor appetite (pension funds, endowments, etc. are allocating more to private debt for steady yields) and by borrowers’ needs for flexibility.

  
  

• Market Share Gains: In the U.S., private lenders have dramatically increased their share of new CRE loans. One report indicated private credit’s share of the US lending ecosystem grew 1000% since 2009. While banks still hold a large portion of outstanding CRE mortgages, the new lending flow has shifted. By 2024, private credit lenders accounted for roughly 40% of the market’s new loan originations (a huge jump from historical norms). Essentially, nearly half of commercial loan dollars might now be coming from non-banks. This is especially pronounced in construction, bridge, and higher-yield loans.

  
  

• Banks Partnering with Non-Banks: Interestingly, this isn’t always a head-to-head competition; sometimes it’s a collaboration. Traditional banks, constrained by regulations, are partnering with private funds to co-lend or refer deals they can’t do. We’ve seen cases of banks selling portions of loans to private funds to reduce exposure, or arranging “A/B” loans where the bank takes a lower-risk A-note and a private lender takes the subordinated B-note (higher risk/higher return piece). This way the borrower still gets the full loan amount needed, but it’s effectively financed partially by private capital behind the scenes.

Why has private credit surged? A few key reasons:

• Regulatory Tightening on Banks: Post-2008 rules (like Basel III, Dodd-Frank) and more recent guidelines have made banks hold more capital and be more selective, particularly for CRE loans perceived as risky (think hotels, offices, development loans). In 2023-2024, some mid-size banks also faced pressure after high-profile bank failures, making them even more conservative. Private lenders are not bound by those same rules; they can step in where banks now fear to tread.

  
  

• Higher Yields Attract Investors: With interest rates up, the yields on private real estate loans are very attractive to investors. Earning 8-12% secured by real estate is a compelling proposition for institutions, compared to, say, bonds or public REIT yields. This has drawn more capital into private debt funds, giving them the firepower to lend more. It’s a positive feedback loop: more demand from borrowers creates more supply of capital from investors chasing yields.

  
  

• Execution and Flexibility: Borrowers have learned that private lenders often deliver on promises faster and with fewer headaches. As sponsors have success with debt funds, they return again for future deals, sometimes bypassing banks entirely for certain needs. The word is out that “fast and certain” beats “cheap but slow” in many scenarios. Private credit has built a reputation for flexibility—offering, for example, mezzanine loans, stretch senior loans, or structure that might combine debt and equity features (like an equity kicker). In a high-interest environment, this flexibility is king.

Bank Loans vs. Private Lender Loans: Key Differences

For those used to working only with banks, it’s important to understand how working with a private credit fund might differ:

• Speed and Certainty: As covered earlier, private lenders can often close deals much faster than banks. They have streamlined credit committees (or sometimes one decision-maker). Many private lenders are willing to issue term sheets within days of receiving info and close within a few weeks. Banks not only take longer, but they might pull a conditional approval if market conditions change. Private funds pride themselves on execution certainty – it’s a selling point. Brokers often have stories of bank financing falling through, and a private lender coming in last-minute to save the deal. In 2025, with volatility, that reliability is precious.

  
  

• Underwriting Focus: Banks are very credit-focused, looking at past financials, borrower financial strength, and strict ratios. Private lenders are often asset-focused and future-looking. They might put more weight on the property’s value and upside and the sponsor’s experience than on, say, the sponsor’s net worth or yesterday’s occupancy. For example, a bank might reject a loan because the borrower’s tax returns show a loss last year, whereas a private lender might say “we see why you had a paper loss (you invested in improvements); the property is solid and your plan makes sense, so we’ll lend.” They also are more comfortable with properties in transition (lease-up, rehab, etc.), whereas banks typically want stable cash flow.

  
  

• Regulations and Paperwork: Banks have to follow lots of regulations (appraisals meeting FIRREA standards, environmental due diligence per strict guidelines, KYC and credit files that check every box). Private lenders, while responsible, can often use shortcuts or internally acceptable alternatives. This can mean less documentation required from the borrower. For instance, a private lender might do an internal evaluation of value instead of a full appraisal in some cases, saving time and cost. They might not require extensive quarterly financial covenants or reporting – whereas bank loans often come with ongoing covenants that can trip up borrowers later. Private loans tend to be more “what you see is what you get” – a higher rate and maybe some fees, but then relatively hands-off as long as you pay the interest.

  
  

• Loan Customization: Need an interest reserve? Want the ability to draw extra funds for tenant improvements? Considering a partial release of collateral later? Private lenders are far more able to structure unique terms. Banks usually have narrow parameters (especially big banks: a loan must fit in a certain credit “box” or it’s a no). Private credit funds often tailor each loan to the deal’s needs. This could include things like accruing interest(allowing interest to roll up if cash flow is low initially), or allowing an earn-out (future funding) when milestones are met. This flexibility often seals the deal for borrowers choosing private money.

  
  

• Pricing: Typically, bank loans are cheaper. For stabilized, low-risk assets, banks (or insurance companies) will offer the lowest interest rates. Private lenders charge a premium – their investors expect higher returns and they often take on higher risk deals. That said, for many moderate-risk scenarios, the gap in rates has narrowed. If banks charge 6% and a private lender charges 8% but delivers far more quickly and reliably, a borrower might gladly pay the 2% extra. On shorter-term loans, the difference in total dollars paid might be relatively minor in the grand scheme of a profitable project. Private loans also come with origination fees (points) similar to banks, but prepayment penalties are often lighter or more negotiable than, say, a long-term CMBS loan. Borrowers value that flexibility to exit or refinance without huge penalties.

In essence, private credit behaves like a pragmatic entrepreneur, while a bank behaves like a bureaucracy. Each has its place, but in 2025’s market, many borrowers feel they need an entrepreneur in their corner.

When to Opt for a Private Credit Lender

A question brokers often face: “Should I go to a bank for this deal, or an alternative lender?” The answer: it depends on the deal parameters, timing, and client’s priorities. Here are scenarios favoring private credit:

• Transitional Assets: Property that isn’t stabilized (e.g., occupancy issues, in need of renovation, repositioning from one use to another). Banks shy away or offer too little leverage. Private lenders thrive on these. For example, turning an old office into apartments – a private fund might finance the acquisition and conversion costs, banking on the end value, whereas no traditional bank would touch a half-vacant office building’s repositioning.

  
  

• Speed Critical: Any deal with a short fuse – acquisition in weeks, or an imminent loan maturity/default. Private credit is the go-to. A fast commercial loan from a private lender can literally save a property from foreclosure while a bank is still “processing the application.” If your client says “I need to close in under 30 days,” you likely call a debt fund first.

  
  

• Borrower Profile Issues: Perhaps the property is fine, but the borrower has a hiccup – maybe a recent bankruptcy settlement, or insufficient liquidity by bank standards, or foreign nationals as principals which some banks won’t lend to easily. Private lenders are more forgiving on who the borrower is, as long as the deal metrics work. They might charge a bit more for perceived risk, but they won’t have a hard “no” due to a credit score or a past issue if they believe the current deal is strong.

  
  

• Highly Leveraged Situations: Banks often cap at around 65-70% LTV for investment properties (and less for riskier). If a sponsor wants/needs higher leverage, the options are either bring in mezzanine/pref equity (which some banks allow, but it complicates things) or go with a private lender offering a stretch senior loan to, say, 80% LTV. Many private lenders are comfortable with higher leverage on a good business plan, whereas banks really can’t exceed certain levels (and regulators scrutinize anything high LTV).

  
  

• Unusual or Complex Deals: Maybe the collateral is a note purchase instead of a property, or it’s a portfolio of mixed property types, or there’s some structural quirk (ground leases, environmental hair, etc.). Private funds often have more expertise or willingness to engage in complex deals. They may even employ experts from brokerage and law firms who specialize in unwinding complexity. Banks typically say no to anything too “outside the box.”

  
  

• Markets in Flux: If the asset class is currently out of favor (like hotels during early COVID, or suburban office now), banks might effectively have a freeze on that asset class. Private capital, however, might see opportunity in the contrarian play – they’ll lend, but at a price that reflects the risk. In 2025, for example, many banks cut off lending to office properties due to remote work impacts. Private lenders are one of the few sources willing to underwrite office loans (especially if there’s a solid repositioning or recapitalization plan).

Conversely, when is a bank loan preferable? If the deal is vanilla, stabilized, low LTV, and time is not an issue, banks or life companies likely offer better rates and it’s worth going through the process. Also, some borrowers have existing credit lines or relationships that give them favorable terms with banks – those should be utilized for cheap capital if available.

Potential Downsides of Private Credit (and How Top Lenders Address Them)

It’s important to note that not all experiences with private lenders are perfect. Some common criticisms or concerns include:

• Cost: As discussed, interest and fees are higher. This can strain project economics. It’s vital to underwrite the deal conservatively to ensure it can support the higher debt cost, and that the value created justifies it.

  
  

• “Loan-to-Own” Fears: Borrowers sometimes worry a hard money lender might want them to default to seize the property. Reputable private lenders actually build their business on repeat clients and successful exits, not foreclosures. But there are opportunistic players out there. The key is to work with trusted, transparent lenders. Check their track record – have they behaved well in past cycles? Many debt funds in 2020-2021 worked out loans with borrowers rather than foreclose, showing a partnership mentality. Choose lenders who view it as “we’re providing a service, not a trap.”

  
  

• Inconsistent Terms: There have been cases (especially with newer or less established private lenders) where the term sheet offered is changed for the worse late in the game, or execution is slower than promised. This is often due to them having trouble raising the money or underestimating risks. To avoid this, work with experienced private lenders with committed capital. For instance, an established fund that has discretionary capital can fund on its promised terms; whereas a broker or new lender who needs to syndicate might struggle. This is why C2R Capital, with a solid capital base, prides itself on execution as promised.

  
  

• Servicing and Relationships: Banks often have relationship managers and provide other services (deposits, etc.). Private lenders usually just focus on the loan. For some borrowers, the holistic relationship of a bank is valuable. That said, many private lenders provide high-touch service on the loan itself – you often deal directly with decision-makers and asset managers who understand your business plan. This can actually feel more relationship-oriented in practice, because they’re engaged in making your project a success, not trying to upsell you on accounts or worrying about regulators.

The Big Picture: A Permanent Shift?

As of Q3 2025, it appears that private credit is not just a cyclical player but a structural part of the CRE finance system. With predictions that private credit could double by 2030, and the fact that it’s now involved in even routine financings, we might be in a new paradigm.

Implications:

• Borrowers and brokers have more options than ever – which is a good thing. It introduces competition and innovation in lending.

  
  

• However, due diligence on lenders is now a part of the process. Where one used to assume any big bank will reliably close, now one must vet the array of private lenders for seriousness and capacity. Building a shortlist of trusted private lending partners (like C2R) is becoming a best practice for brokerage firms.

  
  

• Traditional banks may further adapt by focusing on what they do best (low-cost loans to top-tier borrowers) and leaving the rest to private capital. We may also see banks investing in or sponsoring private debt funds to indirectly participate in higher-yield lending without doing it on their own balance sheets. In fact, some large asset managers and banks have already set up partnership funds for this purpose.

  
  

• In times of economic stress, private credit will be tested. But so far in 2025, despite concerns of a downturn, private lenders have shown resilience. For example, although CRE delinquencies have risen in some sectors (office, etc.), many private lenders proactively managed issues by restructuring loans rather than defaulting borrowers. Their flexibility can actually lead to better outcomes in tough times.

For brokers, the takeaway is clear: embrace the expanded lender universe. If you’re only thinking “which bank do I take this to?”, you might be doing a disservice to your client. Often the better question is “what combination of capital sources makes this deal work best?” It could be a bank, but it might be a private credit fund that offers an easier, faster solution.

Conclusion and Actionable Insight

The CRE finance world in 2025 offers both challenges and new solutions. Private credit funds are at the forefront of these solutions, providing billions in liquidity and enabling transactions that otherwise wouldn’t happen. They are indeed an alternative to bank loans, and in many cases, the preferable one.

Brokers should familiarize themselves with key players in the private lending space in their region and asset specialty. Establish contacts, understand their criteria, and keep them in the loop on deals. When you can approach a client and not only say, “Bank X can lend at this rate,” but also, “A private lender can get you higher leverage and close by next month,” you demonstrate value as an advisor who can navigate all options.

Call to Action: C2R Capital stands as one of the reliable private credit partners for CRE financing in Texas and high-growth markets. We offer the flexibility, speed, and certainty that today’s deals demand, without the red tape that comes with bank lending. If you have a deal that is hitting a wall with traditional lenders or simply need a lender who will think outside the box to get it done, reach out to C2R Capital. We are a Houston-based real estate lender (and serve many other markets) that prides ourselves on being a nimble and trustworthy source of capital. In the evolving world of 2025, make sure you have a private credit ally like C2R in your contact list – because the future of CRE deals is being powered by alternative lending solutions.