Private Credit in CRE Lending: A Primer

The rise of real estate private credit

Over the past decade, private credit has evolved from a niche strategy into a cornerstone of commercial real estate finance. Alternative lenders have doubled their market share - from 7% in 2017 to 14% in the first half of 2025.

Following the Great Financial Crisis, banks reduced exposure to transitional and construction loans due to stricter regulations under Dodd-Frank and Basel III. This created a void for higher-leverage, flexible financing - one that private credit funds and mortgage REITs stepped in to fill.

These alternative lenders offer creative structures, higher leverage and non-recourse terms, enabling sponsors to pursue opportunities banks often pass over. While priced at a premium, the flexibility and speed of execution have made private credit indispensable in today’s market.

The trend accelerated after the banking disruption of early 2023: by Q3 2025, alternative lenders accounted for 37% of closed CRE loans, compared to banks’ 31%. Private credit funds continue to scale rapidly, offering capital solutions that are dynamic, collateral-focused and strategy-driven.

Bridge loan basics

Commercial real estate debt funds typically provide “bridge loans” - short-term, non-recourse loans with a floating interest rate. Bridge loans are often structured with an upfront funding to acquire or refinance a property, plus an additional commitment for future funding related to the execution of a specific transitional or value-add business plan.

These future funding commitments typically provide capital for property renovation, leasing expenses and debt service for operating shortfalls during a period of transition. Terms generally range from 24-36 months, with extension options up to a five-year maximum loan term. Crucially, borrowers retain the flexibility to repay the loan at any time, allowing them to refinance into lower-cost debt or exit via sale once their business plan is complete.

In exchange for this flexibility and higher leverage, lenders earn a spread premium relative to traditional bank debt. Unlike most bank loans, bridge loans are typically non-recourse to the sponsor, meaning repayment is tied to the property’s performance rather than the borrower’s balance sheet. These loans also include protective covenants that activate if the asset underperforms, helping to safeguard the lender’s position.

Value-add real estate business plans

Bridge loans from commercial real estate private credit funds support a variety of business plans. Borrowers use these loans to finance the acquisition of a property or to refinance maturing debt.

The short-term, flexible structure of bridge loans allows borrowers to execute business plans that drive property level NOI and enhance asset value, or to “bridge” through a period of uncertainty and into a more favorable capital markets environment.

Value-add strategies vary by property type, but they share a common thread: the need for targeted capital to elevate performance.

Real estate private credit economics

Private CRE debt investments provide strong risk adjusted returns focusing on capital preservation and current income as compared to other alternative asset classes.

Historically, investors in real estate private credit have been able to achieve equity-like returns with the security of high-quality real estate as collateral.

Real estate debt funds typically originate loans priced to borrowers at 2.5%-4.5% over 1-month Term SOFR, plus fees. At current index rates, this translates to gross annual yields of roughly 6% to 8%. Typically, debt funds finance their positions with warehouse lines of credit or other commercial bank facilities. With loan level leverage of 65%-80%, net returns can reach 10-13% annually, offering investors a senior position in the capital stack with an attractive yield.

Real estate debt funds typically originate loans priced to borrowers at 2.5%-4.5% over 1-month Term SOFR, plus fees. At current index rates, this translates to gross annual yields of roughly 7% to 10%. Typically, debt funds finance their positions with warehouse lines of credit or other commercial bank facilities. With loan level leverage of 65%-80%, net returns can reach 10-13% annually, offering investors a senior position in the capital stack with an attractive yield.

Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment, which may differ materially and should not be relied upon as such. For additional information about Tremont or to contact us, please visit www.tremontcapital.com.