Unlocking Stability and Yield in Middle Market CRE Debt

Why private credit is the new primary

Post-GFC regulatory reforms – most notably Dodd-Frank and Basel III – require banks to hold higher capital reserves and meet stricter liquidity requirements. The result? Traditional lenders have retreated to the perceived safety of stabilized, Class A assets, becoming curators – not creators – of liquidity. This retreat has created a vacuum that private credit has rapidly filled.

• Market share growth: Alternative CRE lenders doubled their market share from 7% in 2017 to 14% in the first half of 2025.
• Current dominance: In Q3 2025 alone, alternative lenders accounted for 37% of closed loans, surpassing the 31% share held by banks.

For CIOs and Portfolio Managers, real estate private credit is burgeoning asset class. Diversification benefits once sought in public markets are now found in private debt strategies that step in where banks step back. Through our lending platform, Tremont Realty Capital, we aren’t replacing bank capital; we are providing the flexibility and execution certainty that modern borrowers demand and that many traditional institutions are challenged to provide.

Bridging the gap in the middle market

Mega-funds and sovereign wealth managers face a problem of their own marking: scale. With multi-billion-dollar deployment mandates, underwriting a $25 million loan absorbs the same human capital as a $125 million loan. To move the needle, they must chase the latter. This scale pressure produces a persistent mispricing of risk in the middle market and leaves the middle-market - loans ranging from $15 million to $75 million - underserved. To capture that demand, private capital lenders, like Tremont, originate bridge loans.

Bridge loans are typically a higher-leverage, short-term, floating-rate financing option used to acquire an asset or refinance existing debt and execute a value-add business plan. In a volatile market, "bridge lending" is often mischaracterized as distressed financing. However, we see several benefits relative to lower leverage or longer-term options:

Higher leverage enables sponsors to execute value-add business plans without needing to raise capital from more expensive sources like mezzanine debt or preferred equity. Flexible repayment allows the Sponsor to either sell the asset or refinance into lower-cost debt once the value-add business plan is complete, rather than having to keep the debt for an extended period, or be restricted by an onerous prepayment penalty.

Disciplined risk management in a volatile era

Bridge lending is often misunderstood - grouped too closely with distress or short‑term rescue capital. In reality, it is the strategic backbone of transitional real estate: a flexible, higher‑leverage solution enabling sponsors to acquire assets, improve them and then refinance at lower cost. When executed with discipline, bridge lending can offer investors equity-like returns, collateralized by real assets, with strong covenants and real-time oversight.

Though distress rates for CRE CLOs – securitized bridge loans – have increased since 2022, market averages obscure specific manager performance. High distress rates in the broader market are often a symptom of passive asset management. A CRE private credit sponsor with a platform set up to manage CRE assets is a vital risk mitigation tool, providing downside protection.

For investors seeking attractive risk‑adjusted returns, low correlation to public markets and sponsors with true operational depth, the middle market stands apart as one of the most compelling opportunities in today’s real estate landscape.

Case in Point: Curtis Junction

Boise, Idaho

$18M | Multifamily | Bridge Loan

The opportunity: A 1970s-vintage multifamily property in a high‑growth secondary market, overlooked by large institutional lenders due to deal size and geography.

Why we stepped in: The loan sat squarely in the underserved $15–$75M middle‑market tranche, where competition is limited and pricing power shifts to disciplined lenders.

Our approach: We partnered with an experienced value‑add sponsor and structured a bridge loan that provided high‑leverage flexibility to bridge the property through final lease-up and concession burn-off after a property-wide renovation, while protecting downside through conservative underwriting and active oversight.

The result: Tremont captured a premium yield relative to primary-market deals, secured by well‑understood collateral, a clear value‑add plan and strong sponsor alignment.

Sources CBRE Capital Markets, CBRE Research, CRED iQ Green Street Advisors, MCSI, Real Capital Analytics, Sterling Asset Group

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.