Banks Shift to Backing Private Credit Over Direct CRE Loans

Capital Stack Strategies Are Evolving

Banks are reworking their approach to commercial real estate lending, and the change is upending how deals get done. According to a Globe St, banks are largely stepping away from originating long-term direct CRE loans, instead opting to finance private credit funds through structured vehicles like term facilities and warehouse lines.

By doing so, banks are moving up the capital stack—providing leverage not to individual properties, but to the funds and platforms that in turn deploy debt across portfolios of CRE assets. This approach keeps banks’ exposure to the sector but shifts it further away from direct property risk and regulatory scrutiny tied to long-hold CRE loans. The result, per Trepp, is that the path of capital into CRE now involves additional layers and intermediaries, fundamentally altering the lender-borrower relationship.

The Details

This structural shift means CRE sponsors now negotiate with private credit funds instead of banks. Banks still supply capital behind the scenes. They finance funds through term facilities and warehouse lines.

According to Trepp, these structures let banks stay active in CRE debt. They also reduce direct loan exposure. At the same time, banks gain shorter maturities and greater risk flexibility. However, borrowers face another risk layer. A fund’s financing terms can affect pricing, extensions, and default outcomes.

Shorter Tenors, Layered Risk

Trepp says shorter loan terms now define the market. Interest rate volatility and tighter regulation continue driving the trend. Banks increasingly fund private credit platforms instead of issuing long-term CRE loans. Meanwhile, floating-rate, higher-coupon loans have become more common, according to Trepp’s syndicated data.

This approach keeps capital flowing but adds more layers between lenders and property owners. Banks pursue yield without holding direct CRE loans. As a result, funding private credit platforms has become a mainstream strategy. Consequently, deal terms, triggers, and restructurings now depend on banks, credit funds, and macroeconomic policy.

Why It Matters

For borrowers and dealmakers, this shift changes who controls capital and risk. Trepp Chief Product Officer Lonnie Hendry said on the podcast, “the landscape has shifted, and who’s providing the debt capital, and at what terms?” now matters as much as pricing.

Trepp says capital remains available but flows through more complex structures. Borrowers must evaluate both the private credit fund and its bank financing. Bank decisions, regulatory actions, or Fed policy shifts can quickly change a fund’s leverage. That can increase risk throughout the capital stack.

Market participants continue watching this trend as private credit expands its CRE lending share. A 2025 CBRE tally found private credit funds held more than $300B in US CRE debt. Banks financed a significant portion of that lending. Competition among banks to finance private credit platforms has also improved borrowing terms for many large CRE lenders. Sponsors and asset managers now treat these relationships as essential due diligence. Private credit keeps deals moving. However, borrowers also inherit upstream liquidity pressures and lender incentives.

What’s Next

Expect this trend to continue as banks manage regulatory pressure and margin demands. Meanwhile, private credit platforms will keep scaling with bank financing. Borrowers should expect more layered negotiations while inflation and central bank policy create uncertainty. Bank-fund dynamics will increasingly shape loan terms alongside property performance.

The coming quarters will show whether this capital shift supports liquidity or creates new risks. Either way, identifying the true capital provider has become essential in CRE.