Should CRE Worry About Private Credit?

As the first quarter came to a close, credit availability in commercial real estate remained healthy and competition among lenders intensified. Increased liquidity from banks, combined with a sluggish transaction market, has created an attractive borrowing environment.

For borrowers, that has meant lower spreads and increasingly favorable terms. For lenders, it has meant stiffer competition to win deals and growing pressure to meet origination targets.

That dynamic is familiar to anyone who has worked through prior credit cycles. When liquidity outpaces demand, underwriting discipline tends to weaken and returns compress. In the short run, that benefits borrowers. Over time, however, it can lay the groundwork for future credit problems.

Outside the CRE market, private credit funds have recently drawn increased scrutiny. These funds, which primarily provide unsecured loans to private companies, have come under pressure amid concerns about underlying credit quality and growing investor redemption requests. Over the past decade, private credit became a favored asset class among high-net-worth investors by offering attractive yields paired with the perception of relatively low risk. That perception is now being tested.

As in prior corporate and real estate credit cycles, abundant liquidity can encourage looser underwriting and thinner pricing, often preceding a rise in defaults. Recent increases in defaults, coupled with questions about the long-term resilience of certain corporate borrowers, have led some investors to seek liquidity. Most private credit funds are structured to limit redemptions, often capping them at 5 percent of assets under management per period in order to prevent forced asset sales and protect remaining investors from a classic run-on-the-fund scenario.

CRE investors have seen this before. Last year, Blackstone Real Estate Income Trust made headlines when redemption requests exceeded available liquidity. Today, some private credit funds, particularly those that have raised substantial capital from high-net-worth investors and their advisors, are facing similar pressures and attracting similar attention.

For the CRE industry, the concern is not necessarily direct exposure, but contagion. Credit market disruptions often spread in unexpected ways, and stress in one part of the capital markets can eventually affect another. The question, then, is whether current pressures in private credit could spill into commercial real estate lending.

Overlapping concerns

There are three potential areas of overlap: fund sponsors, portfolio exposure and fund-level leverage.

First, many of the general partners and asset managers sponsoring private credit funds are also significant participants in CRE lending. That said, most of these firms have limited balance-sheet exposure to the funds they manage. As a result, weakness in a specific private credit vehicle would not necessarily impair the manager’s ability to continue deploying capital through other strategies, including real estate credit platforms.

Second, direct CRE exposure within private credit funds appears limited, though disclosure is often imperfect. Most large private credit managers operate separate vehicles for real estate lending, including REITs, real estate debt funds and insurance company balance-sheet programs. As a result, their flagship private credit funds are still predominantly focused on corporate lending. Blue Owl’s OCIC, for example, disclosed that “buildings and real estate” represented just 3.1 percent of its portfolio as of Dec. 31, 2025.

The third and most meaningful area of overlap is fund leverage. Private credit funds typically employ leverage of approximately 1.0x, with a general range of 0.7x to 1.5x, according to Bloomberg. To achieve that leverage, they often rely on the same financing channels used by CRE debt funds, including bank lines of credit, warehouse facilities and collateralized loan obligations. Even so, current leverage levels appear moderate by historical standards and broadly consistent with the risk profile of the underlying assets.

For now, there does not appear to be a strong reason to view private credit as an immediate systemic threat. The points of intersection are real, but they do not yet suggest a material risk to commercial real estate lending markets. That could change if redemption pressure accelerates, financing markets tighten or problems in corporate credit deepen.

Commercial real estate has no shortage of issues to work through before the market returns to full health. For now, private credit does not appear to belong near the top of that worry list. But in credit markets, indirect linkages matter—and they tend to matter most when investors stop paying attention to them.

Shlomi Ronen is managing director of Dekel Capital Inc.