Against a backdrop of constrained bank lending and shifting risk appetites, private capital is increasingly redefining how real estate is financed in the US and Europe, as banks that still hold substantial commercial mortgage loan exposures have nevertheless tightened underwriting since late 2022, creating a measurable lending gap that third-party capital is now filling with tailored structures. Private credit has responded with flexible maturities and repayment profiles, positioning itself as a permanent fixture in deal financing while traditional lenders remain restricted.
With banks tightening underwriting since 2022, private credit is filling the lending gap with flexible, tailored real estate financing.
The pivot is occurring alongside broader private-market expansion, with private credit assets under management projected to double to $4.5 trillion by 2030, even as fundraising is expected to slow in 2025 before recovering in 2026. Direct lending remains the backbone, yet flows are increasingly complemented by distressed debt, special situations, and asset-backed finance, and an annualised 28% surge in distressed debt fundraising is forecast through 2030. Collateralised loan obligations are also extending access to retail and wealth channels, widening the investor base for credit strategies supporting property capital stacks. This widening audience is reinforced by a Preqin Nov 2025 survey showing 81% of respondents plan to hold or increase private credit commitments throughout 2026.
Deal activity reinforces the trend, as private capital deals reached $2.3 trillion by November 30, 2025, the strongest year since 2021. Private equity rebounded in 2025 with more than 9,000 transactions totaling $1.2 trillion, and deal volume is forecast to rise further in 2026, outpacing overall M&A growth as late-2025 momentum carries into an anticipated Fed rate-cut cycle. Falling borrowing costs, alongside AI-driven activity, is expected to accelerate recapitalisations, portfolio rotations, and sector roll-ups, despite a decline in dry powder from 2024 records. PitchBook data show U.S. private equity deal value exceeded $1 trillion in 2025, underscoring the breadth of the rebound.
In real estate, strategies are described as value-add, vertically integrated, and regionally selective, with overweights to the US Sunbelt, Southern Europe, and, in Asia-Pacific, Australia and Singapore. Residential and industrial assets are prioritised amid supply-demand imbalances, while secondaries are cited as entry points at discounts to fair market value. Operational value creation increasingly hinges on digital transformation and AI efficiencies, yet the asset class competes for capital with infrastructure and private credit in a tight-liquidity environment, even as 45% of investors expect to allocate more to private real estate over the next 12 months, up from 34% in 2025. Alongside these allocation shifts, portfolio diversification across geographies and asset segments remains a foundational principle for managing concentration risk and sustaining resilience through market cycles.
