Private Credit Didn’t Fix Middle-market Cre. It Delayed A Reckoning

Over the past several years, private credit has been portrayed as a lifeline for commercial real estate. As banks have tightened under regulatory pressure and rising rates, debt funds stepped in and kept transactions moving. According to the Mortgage Bankers Association, private credit funds accounted for roughly 24% of U.S. CRE lending volume last year, well above their 10-year average of 14%.

For middle-market borrowers, that capital mattered. Private lenders offered flexibility, speed and a willingness to structure around complexity. In an expansion cycle, that liquidity covered up friction in the system.

But liquidity is not the same as modernization.

Today, as loans mature and refinancing activity accelerates into a higher-rate environment, private lenders are becoming more and more selective. At the same time, delinquency rates are rising in certain asset classes, and banks re-entering the market are doing so very cautiously. The middle market now faces a refinance wall without the cushion that existed just a few years ago.

What this pullback has revealed is not a passing phase, it’s a total fundamental shift. 

Commercial lending in the middle market still depends way too much on fragmented broker relationships and variable, inconsistent lender criteria. Most transactions are not rejected because of rate alone; instead, they fall apart because one variable is misaligned… debt coverage, how the loan is secured, geography, loan size, prepayment terms. If a single element doesn’t perfectly fit inside the lender’s requirements, the deal dies.

In strong markets, that inefficiency is easier to overlook. Capital is easy to access, and borrowers often settle for “good enough.” In tighter cycles, trial-and-error becomes expensive. Brokers spend weeks or months circulating deals. Borrowers absorb higher costs or delayed timelines. Lenders waste time going through submissions that were never a fit to begin with.

Private credit expanded access to capital, but it did not address this serious underlying inefficiency. All it did was add supply. It did not fix matching.

If liquidity continues to contract, the middle market will need something more durable than another wave of capital. It will need visibility into how lenders actually make decisions, and consistency in how deals are put together and evaluated.

CRE lending is complex by design. There are dozens of variables that determine whether a transaction works. The problem has never been a lack of lenders; it has been the absence of structured, reliable ways to match up borrower priorities with lender requirements before a deal even enters the market.

As this cycle resets, discipline will matter more than speed. Fit will matter more than headline rate. Brokers who can evaluate lender criteria with precision will operate differently than those relying on relationships alone. Lenders who receive better-matched opportunities will allocate capital more confidently.

Private credit was a bridge. Now the market is being forced to confront the infrastructure underneath it.

The next phase of middle-market CRE will not be defined by who has capital. It will be defined by who can match it intelligently.

Mitch Ginsberg is the CEO of CommLoan.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.