Private Credit for Commercial Real Estate Refinancing: A Strategic Alternative in Today's Market

Commercial real estate owners have a big problem when their loans mature. Traditional banks have pulled back, so many property owners are scrambling for new ways to refinance.

Private credit has stepped in to fill this gap, offering flexible financing options for commercial real estate refinancing when conventional lenders say no.

Private credit basically means loans from non-bank lenders like debt funds or private equity firms. These lenders now handle about 60% of new commercial real estate loans, while banks have dropped to around 40%.

With $957 billion in commercial real estate loans maturing in 2025, private credit has become a lifeline for property owners who need to refinance quickly or don’t fit a bank’s checklist.

You might need private credit if your property doesn’t qualify for a bank loan or if you need money fast. Private lenders look at your property’s income and future potential, not just rigid rules.

They can structure loans from $25 million all the way up to $500 million or more for acquisitions, refinancing, or property upgrades.

Key Takeaways

• Private credit lenders offer flexible refinancing options when traditional banks turn you down or can’t move fast enough.
• These non-bank lenders focus on your property’s cash flow and upside, not just strict requirements.
• Private credit costs more than bank loans but offers speed and flexibility that can keep deals alive.

Understanding Private Credit in Real Estate

Private credit works outside traditional banking channels and brings different terms, timelines, and flexibility. These lenders—specialized funds, debt funds, alternative investment firms—have stepped up as banks have pulled back from commercial real estate.

What Sets Private Credit Apart From Traditional Lending

Private credit lenders make decisions faster than banks because they aren’t bogged down by as many regulations. You might close a deal in 30 to 60 days, instead of waiting 90 days or more.

Speed and flexibility are the big draws here. These lenders structure deals around your situation rather than shoving you into a standard product.

They care more about your property’s income and your business plan than about ticking boxes on compliance forms.

You’ll pay for that speed, though. Interest rates are usually 200 to 400 basis points above bank loans, and origination fees run from 1% to 3%.

Banks now handle about 40% of new originations, a big drop from their old dominance. This shift opens doors for borrowers who need to access capital when banks say no, but you have to be ready for the higher costs.

Types of Private Credit Providers

Debt funds focus just on real estate lending, raising capital from big investors. They offer bridge loans, construction loans, and value-add property loans, sticking to clear mandates and usually targeting specific property types or deal sizes.

Private equity firms with lending arms blend investment capital with debt products. If you have a relationship with them or your deal matches their strategy, you might get even more flexible terms.

Specialty finance companies hone in on niches like medical offices, self-storage, or hotels. They know your property type inside out and can move quickly on deals banks won’t touch.

Family offices and high-net-worth individuals are getting in on direct lending, too. They often lend through their networks and might offer relationship-based terms.

Key Terms and Structures in Private Credit

Loan-to-value (LTV) ratios in private credit usually run from 60% to 75%. Some lenders will go higher for strong borrowers, while banks typically cap LTV at 65% these days.

Interest rates range from 8% to 14%, depending on property type, leverage, and term. Most loans use floating rates tied to SOFR plus a 500-800 basis point spread.

Loan terms are shorter than bank loans. You’ll often see:

• Bridge loans: 12 to 36 months, with options to extend
• Construction loans: 18 to 36 months, depending on the project
• Term loans: 3 to 5 years, with an expectation you’ll refinance

Most private lenders ask for interest reserves up front—usually 6 to 18 months of payments at closing. They hang onto this and release it monthly, just in case your property hits a rough patch.

Prepayment penalties are all over the map. Some lenders drop penalties after a year; others stick you with yield maintenance or defeasance for the whole term.

Benefits of Private Credit for Refinancing

Private credit gives commercial real estate borrowers some real advantages during refinancing, especially when banks can’t deliver. You get customized loan terms, faster timelines, and more flexibility for tricky property situations.

Tailored Loan Structures

Private lenders design loan structures around your property and business plan, not just a generic template. You can negotiate terms that fit your property’s cash flow, like interest-only periods or flexible amortization—stuff banks rarely offer.

The underwriting focuses on your property’s potential and your plan, not just current performance. If you’re planning upgrades or repositioning, private lenders will structure financing based on future value increases.

Common customization options:

• LTV ratios up to 75% or more
• Interest-only periods for 12-36 months
• Flexible prepayment terms, sometimes with minimal penalties
• Cross-collateralization across several properties

Faster Approval and Funding

Private credit lenders usually close in 30-45 days, while banks often take 60-90. You might get a preliminary commitment in days, not weeks, which is huge if your loan is maturing soon.

The streamlined process skips a lot of paperwork and committee delays. Private lenders make decisions quickly because they have more autonomy and less red tape.

You work directly with people who know real estate and can actually make the call. That speed really matters with $957 billion in commercial real estate loans coming due in 2025—delays could mean default or forced sales at bad prices.

Increased Flexibility for Borrowers

Private lenders handle situations banks won’t touch. You can get refinancing even if you’ve got temporary occupancy problems, properties in transition, or recent income swings that would make a bank run.

They care less about your personal credit or corporate balance sheet. Private lenders focus on the property and your equity, not just your credit score.

You can also negotiate less restrictive covenants, giving you more operational freedom. If you’ve got a non-traditional property or something in a secondary market, private credit might be your only option.

Eligibility and Underwriting Criteria

Private lenders look at three main things when evaluating a refinancing deal: your experience and financial strength, the property’s income potential, and the loan-to-value.

Borrower Qualifications

Private lenders care about your track record—usually at least two or three years owning or running similar properties. They also want to see you’ve got enough liquidity, often cash reserves equal to 6 to 12 months of debt payments.

Your credit score matters, but there’s more wiggle room than with banks. Some lenders accept scores as low as 600-650, though you’ll get better rates with 680+.

Personal guarantees depend on the deal. Some lenders offer non-recourse loans if you’re a strong borrower with a stabilized asset.

Expect to provide recent tax returns, personal financial statements, and rent rolls. Lenders want to see you can handle market shifts and keep the property running if things get tough.

Property Types Considered

Private lenders finance almost every commercial property type—multifamily, retail, office, industrial, mixed-use. They’ll also consider self-storage, medical offices, and hotels.

The property needs to generate income or have clear potential after improvements. Stabilized properties with solid tenants get the best terms. Value-add deals work too, but expect higher rates and more equity requirements.

Lenders generally avoid properties with big environmental issues, lots of deferred maintenance, or weak market appeal. Location is a big deal—better markets mean better loan terms.

Collateral and Loan-to-Value Standards

The Debt Service Coverage Ratio (DSCR) shows if your property brings in enough income to cover the loan payments. Most private lenders want a minimum DSCR of 1.20 to 1.25.

Loan-to-Value (LTV) usually maxes out at 65% to 75% for refinancing. You’ll need 25% to 35% equity in the property. If your property is stronger, with a higher DSCR, you might get a higher LTV.

Private lenders order third-party appraisals to confirm value. They’ll review your operating statements, leases, and market rent comps. The more equity you have, the more flexible lenders can be on other terms.

Comparing Private Credit With Conventional Financing

Private credit and bank financing are pretty different. Banks offer lower rates but have stricter requirements, while private lenders can move faster but cost more.

Interest Rates and Fees

Private credit lenders charge higher interest rates than banks—usually 8% to 15% per year, compared to 5% to 8% from banks. That premium reflects the extra risk and the fact they’ll do deals banks won’t.

Fee structures differ, too:

• Private Credit: Origination fees of 1-3%, possible exit fees, and prepayment penalties
• Traditional Banks: Lower origination fees of 0.5-1.5%, minimal exit costs

Private lenders often charge points up front—maybe 2 points at closing plus a 1% exit fee. Banks generally skip exit fees but want more documentation and appraisal costs during underwriting.

Risk Assessment Approaches

Banks use standardized underwriting criteria focused on your debt service coverage ratio, loan-to-value ratio, and credit score.

You'll usually need a DSCR of at least 1.25 and an LTV below 75% for most commercial properties.

The approval process takes 45 to 90 days, as banks verify every detail of your financial history and property condition.

Private credit firms evaluate deals individually based on the asset's potential and your experience.

They look at the property's cash flow, location, and your track record as a borrower.

This flexibility means you might secure financing with a DSCR as low as 1.0 or an LTV up to 85%.

Private lenders make decisions in 7 to 21 days because they avoid the bureaucratic approval chains that slow down banks.

They focus on the deal's economic merit, not just ticking boxes on a standardized form.

Repayment Terms and Exit Strategies

Bank loans typically run for 5 to 10 years with amortization periods of 20 to 30 years.

You'll make regular monthly payments that include both principal and interest.

Banks expect you to refinance with them or another lender when the loan matures.

Private credit offers shorter terms of 1 to 3 years, often with interest-only payments.

This structure reduces your monthly obligations but requires a clear exit strategy.

You might repay through a property sale, cash-out refinance with a bank, or an extension with your current lender.

Common exit strategies include:

• Refinancing to a bank loan once you've stabilized the property
• Selling the property to a new investor
• Negotiating a loan extension with your private lender
• Securing agency financing for multifamily properties

Private lenders build in flexibility for borrowers who need more time, but extensions come with extra fees of 0.5% to 1% of the loan balance.

Process of Securing Private Credit

Getting private credit for commercial real estate refinancing involves three main steps: finding the right lender, completing their application process, and finalizing the loan documents.

Each step requires different information and timelines compared to traditional bank loans.

Sourcing Lenders

You need to identify private credit lenders who specialize in your property type and loan size.

Private credit firms range from large institutional funds to smaller regional lenders.

Start by working with a commercial mortgage broker who has relationships with multiple private lenders.

Brokers can match your deal to lenders most likely to approve it.

You can also contact private credit funds directly through their websites or at industry conferences.

Different lenders focus on different niches.

Some specialize in bridge loans for properties needing lease-up, while others prefer stabilized assets.

Your property condition, location, and loan amount will determine which lenders are the best fit.

Private lenders often fund deals that banks reject due to lower occupancy rates, borrower credit issues, or property condition concerns.

This flexibility comes with higher interest rates, typically ranging from 8% to 14% in 2025.

Application and Due Diligence

Your application package needs to include a detailed business plan for the property, current rent roll, operating statements, and property condition reports.

Private lenders want to see clear exit strategies for repayment.

The due diligence timeline is usually 30 to 60 days, which is faster than traditional bank loans.

Lenders will order third-party appraisals, environmental reports, and property inspections.

You'll need to provide updated financial statements and background information on all principals.

Private credit lenders focus heavily on the property's cash flow and value rather than your credit score.

They analyze debt service coverage ratios and loan-to-value metrics to assess risk.

Be ready to answer questions about your property management plan and market conditions.

Closing and Documentation

Loan documents for private credit are more customized than standard bank forms.

You'll review term sheets that outline interest rates, fees, prepayment penalties, and extension options.

Private lenders typically charge origination fees between 1% and 3% of the loan amount.

Your closing costs will also include legal fees, title insurance, and lender's due diligence expenses.

The closing process takes 45 to 90 days from application to funding.

You'll work with attorneys to review loan agreements, mortgages or deeds of trust, and any intercreditor agreements if multiple lenders are involved.

Private lenders may require personal guarantees or extra collateral depending on the deal structure.

Common Use Cases and Scenarios

Private credit fills financing gaps when traditional banks step back or when deals need faster execution and flexible terms.

Property owners often turn to private lenders for short-term solutions, maturing debt obligations, or properties that don't fit conventional lending criteria.

Bridge Loans for Property Stabilization

Bridge loans give you short-term financing to improve a property before securing permanent financing.

You might use these loans when buying a property that needs renovations, has low occupancy, or requires operational improvements to increase its value.

Private credit funds offer bridge loans that typically last 12 to 36 months.

During this time, you can complete renovations, lease up vacant space, or improve property management.

The flexible structure lets you focus on increasing net operating income without the strict requirements that banks impose.

These loans work well when you need to act quickly on an acquisition or when the property's current condition prevents traditional financing.

Private lenders evaluate the property's future potential rather than just its current state.

You pay higher interest rates than conventional loans, but you gain the time and flexibility needed to stabilize the asset and refinance into permanent financing at better terms.

Refinancing Approaching Loan Maturities

You face significant challenges when your commercial real estate loan matures in a market with high interest rates and tight lending standards.

Private credit provides a solution when your existing lender won't extend your loan or when you can't meet new bank requirements.

Private lenders focus on your property's cash flow and equity position rather than strict debt service coverage ratios.

This approach helps you avoid forced sales during unfavorable market conditions.

You can refinance your maturing debt and buy time until traditional financing becomes available again or market conditions improve.

The urgency of approaching maturities often requires fast closings that banks can't accommodate.

Private credit funds can close deals in weeks rather than months.

Transactions With Unique or Complex Assets

Private credit serves properties that fall outside standard lending criteria.

You might own mixed-use buildings, specialty properties, or assets in transition that banks consider too risky or unusual for their underwriting guidelines.

Properties with non-traditional income sources, ground leases, or complex ownership structures often require specialized lenders.

Private credit funds evaluate each deal individually rather than applying rigid lending formulas.

They structure loans around your specific situation and the property's unique characteristics.

You also benefit from private credit when dealing with properties that have environmental issues, deferred maintenance, or tenant concentration problems.

These lenders price risk into their rates but remain willing to finance deals that conventional lenders reject.

Risks and Considerations

Private credit for commercial real estate refinancing offers flexibility but comes with distinct financial risks that can really impact your bottom line.

Higher costs, stricter terms, and limited exit options require careful evaluation before you commit to this financing path.

Interest Rate Fluctuations

Private credit lenders typically charge floating interest rates tied to benchmarks like SOFR (Secured Overnight Financing Rate).

Your monthly payments can increase substantially when rates rise, affecting your property's cash flow and profitability.

Most private credit loans carry rates between 8% and 15%, depending on property type and borrower strength.

This compares to traditional bank financing at 6% to 9% in 2026.

A 200 basis point increase in rates could add tens of thousands of dollars to your annual debt service on a $10 million loan.

You should model various rate scenarios before closing.

Consider rate caps or collars to limit your exposure, though these protections add upfront costs to your transaction.

Some lenders build rate floors into their agreements, meaning you won't benefit if rates decrease below a certain threshold.

Shorter Loan Durations

Private credit loans typically run 12 to 36 months, much shorter than the 5 to 10-year terms banks offer.

You'll face another refinancing cycle sooner, exposing you to future market uncertainty and extra transaction costs.

Short durations work well for bridge financing or property repositioning projects with clear exit strategies.

However, they create refinancing risk if your property stabilization takes longer than expected or if the lending market tightens when your loan matures.

You need a concrete exit plan before taking private credit.

Will you refinance with a bank once your property stabilizes?

Are you planning to sell?

Without clear answers, you risk default if permanent financing isn't available at maturity.

Prepayment Penalties and Exit Costs

Private lenders protect their returns through prepayment penalties that can cost 1% to 5% of your loan balance.

Yield maintenance clauses may require you to compensate lenders for their lost interest income if you pay off the loan early.

Extension fees, exit fees, and success fees can add another 0.5% to 2% to your payoff amount.

Some lenders charge these fees even if you refinance with them.

Read your loan documents carefully to understand the true cost of exiting your loan before the maturity date.

These penalties limit your flexibility to take advantage of better financing opportunities.

If traditional bank financing becomes available at lower rates, the savings might not offset the prepayment costs.

Trends Impacting Private Credit Markets

Private credit markets for commercial real estate are changing rapidly as banks pull back and new players step in.

Interest rates, regulations, and investor preferences are all reshaping how borrowers access financing.

Regulatory Developments

Banks face tighter lending standards following recent financial sector instability.

European banks have reduced their commercial real estate lending from their historical 75-80% market share, while US banks have similarly tightened their requirements.

This creates more space for private credit firms to operate.

You'll notice that private lenders now often work alongside banks rather than competing with them.

Banks provide note-on-note financing, back-leverage facilities, and A notes to private credit firms.

This partnership model represents a structural shift in how commercial real estate capital markets function.

The regulatory environment continues to push traditional lenders away from commercial real estate exposure.

Private credit firms operate under different regulatory frameworks, which allows them to offer more flexible terms.

However, this flexibility comes with increased scrutiny as regulators monitor the growing role of non-bank lenders in the market.

Shifts in Investor Appetite

Investors are increasingly drawn to private credit because of attractive return potential.

Interest rates in 2026 are double the trailing five-year average, and real estate spreads remain elevated.

Combined with lower property values, lenders can potentially earn income yields exceeding historical norms.

The asset class has evolved from simple leveraged corporate lending into a complex ecosystem.

You now see diverse strategies, vehicle structures, and capital pools within private credit.

Asset-backed finance has become a core component of funding growth in the sector.

Demand for flexible financing solutions drives capital into private credit markets.

Traditional bank loans often can't meet the needs of borrowers with unique property types or situations.

Private lenders fill this gap by offering customized terms and faster execution.

Economic Factors Influencing Lending

High interest rates create both challenges and opportunities in commercial real estate financing.

Borrowers face higher debt service costs, but lenders benefit from improved yields.

Property values have declined in many markets, which provides lenders with better loan-to-value ratios and increased downside protection.

Inflation has eased but remains a consideration for underwriting deals.

You need to account for operating cost pressures on properties and potential impacts on tenant stability.

Geographic and property type diversification helps reduce portfolio vulnerabilities during uncertain economic periods.

Banks retreating from commercial real estate financing has created a funding gap estimated at trillions of dollars.

Private credit firms with strong capital positions can originate loans that banks no longer pursue.

This shift accelerates as global capital demand rises and traditional lenders maintain conservative postures.

Best Practices for Borrowers

Success in private credit refinancing depends on preparation, strategic negotiation, and expert guidance.

Borrowers who approach the market with organized documentation, clear communication, and professional support position themselves to secure better terms and smoother transactions.

Preparing Comprehensive Documentation

Private credit lenders want detailed financial information so they can evaluate risk and structure deals quickly. You’ll need to provide current rent rolls, operating statements from the past three years, and property appraisals done within the last six months.

If you’re missing documents or they’re incomplete, approval gets delayed and lenders might see it as a sign of poor organization. That’s not the first impression you want to make.

Your business plan should lay out how you’ll use the funds and generate returns. Include cash flow projections that reflect current market conditions and vacancy rates.

Lenders want to know you understand your property’s performance and actually have a realistic strategy. If you can’t show that, you’ll probably struggle to get approval.

Property condition reports and environmental assessments help reduce lender uncertainty. It’s smart to address any deferred maintenance before you approach lenders, or at least have a plan to handle it after closing.

Being upfront about property challenges builds trust and helps avoid surprises later.

Negotiating Favorable Terms

Interest rates in private credit usually run from 8% to 14%. The final rate depends on your property quality and financial strength.

Compare offers from different lenders to get a sense of market pricing. Every lender has their own preferences for property types and risk.

Key terms to negotiate include:

• Prepayment penalties and flexibility
• Extension options if the market shifts
• Recourse versus non-recourse provisions
• Reserve requirements for capital improvements

Loan-to-value ratios often hit 65% to 75% for stabilized properties. You might get higher leverage if you bring extra collateral or accept stricter terms.

Watch out for exit fees and closing costs—they add up fast. Always review fee structures closely.

Working With Experienced Advisors

Mortgage brokers who know private credit lenders can connect you to the right people way faster than going it alone. They know which lenders like certain property types and deal sizes.

Brokers also help you structure proposals that fit lender requirements right from the start.

Real estate attorneys with private credit experience protect your interests during negotiations. They’ll spot problematic clauses and make sure the loan documents match what you agreed to.

Legal review costs a lot less than living with unfavorable loan terms.

Financial advisors help you decide if private credit is even the right move. They can model scenarios and compare refinancing to just holding or selling.

When you’re dealing with distressed properties or tricky capital structures, professional advice is worth its weight in gold.

Frequently Asked Questions

Private credit lenders usually offer more flexible terms than traditional banks, but you’ll pay more. Approval depends mostly on property cash flow and sponsor experience—not just loan-to-value ratios.

How does private credit differ from traditional bank lending for commercial real estate refinancing?

Private credit lenders can close loans much faster than banks. You’re looking at 30 to 60 days, while banks might take 90 to 120 days.

They focus on your property’s cash flow and your track record, not just perfect financial statements or regulatory checklists.

Banks now account for about 40% of new commercial real estate loans, which is way down from the past. Tighter regulations and higher rates have made banks more cautious.

Private credit funds will lend on properties banks consider too risky. If your property has low occupancy, needs renovations, or doesn’t fit traditional criteria, you can still get financing.

The tradeoff? You’ll pay higher interest—typically 9% to 14% versus 6% to 9% for bank loans.

What are the typical loan terms, covenants, and amortization structures offered by private credit lenders?

Most private credit loans for commercial real estate last 2 to 5 years. They’re usually interest-only, so you won’t pay down the principal until maturity.

Loan-to-value ratios generally fall between 60% and 75% for refinancing. Some lenders will go higher if your property cash flow is strong and you have solid experience.

Private lenders include fewer financial covenants than banks. The debt service coverage ratio is usually 1.15x to 1.30x.

Some lenders require cash flow sweeps if your property’s income drops below certain levels. Most loans include prepayment penalties, often with yield maintenance or step-down structures.

What underwriting factors most influence approval for refinancing an existing commercial property loan?

Your property’s current net operating income matters most. Lenders want to see enough cash flow to cover debt payments with some cushion.

Occupancy rates are a big deal. If your building is over 80% occupied, you’ll get better terms.

Your experience as a property owner or operator directly affects your approval odds. Lenders look at how many properties you’ve owned, how long you’ve held them, and if you’ve refinanced successfully before.

The length of your tenants’ leases also matters. Strong tenants with long-term leases make approval easier because they keep income steady.

What are the most common fees and all-in borrowing costs to expect when refinancing through a private credit fund?

Origination fees usually range from 1% to 3% of the loan amount. You’ll pay these at closing, and they’re often higher than what banks charge.

Your all-in interest rate will likely fall between 9% and 14%. This depends on property type, location, occupancy, and your loan-to-value ratio.

Exit fees of 1% to 2% are common when you pay off the loan. Sometimes lenders build these into the prepayment penalty instead of charging them separately.

You’ll also pay for third-party reports like appraisals, environmental assessments, and property condition reports. These can run $10,000 to $25,000 depending on size and complexity.

Legal fees for your attorney and the lender’s attorney can add another $15,000 to $40,000 to your closing costs.

When does it make sense to use private credit for a refinance versus waiting for a bank or CMBS option?

Private credit makes sense when your current loan is maturing soon and you need to close quickly. With $957 billion in commercial real estate loans coming due in 2025, a lot of borrowers are under time pressure.

If your property doesn’t qualify for traditional financing—maybe because of low occupancy, tenant rollover, or recent performance issues—private credit can bridge the gap until you stabilize the asset.

You might go with private credit if you plan to sell within 2 to 3 years. The higher interest doesn’t sting as much on a short timeline, and flexible terms let you exit when the market improves.

If banks aren’t offering enough to meet your refinancing needs, private credit can fill the gap. Some borrowers even use private credit as a second lien behind a bank loan to maximize proceeds.

What are the main risks to borrowers and lenders in the current commercial real estate private credit market?

Rising interest rates are putting borrowers in a tough spot. If you need to refinance now, you’re probably looking at much higher rates than you had in 2020 or 2021.

Your debt service payments could jump by 40% to 60%. That kind of increase can really squeeze your property’s cash flow.

Property values have dropped in a lot of markets. At the same time, financing costs keep climbing.

You might not get enough from a new loan to pay off your old debt. That could mean you’ll have to bring extra cash to the closing table—never a fun surprise.

Private credit lenders aren’t immune to these problems. Their own funding sources are getting tighter, and some funds have to deal with investors wanting their money back.

This makes it harder for lenders to make new loans or extend the ones they already have. Not exactly a great environment for growth.

Some property types are feeling the pain more than others. Office buildings, for example, are under pressure thanks to remote work sticking around.

Retail properties in less desirable spots are struggling, too. Tenant defaults and fewer shoppers just add to the headache.

Regulatory scrutiny of private credit is ramping up as the market keeps growing. Nobody knows exactly how new oversight might shape the way private lenders do business or set their terms down the road.