A quiet power shift is underway in commercial real estate finance.
As major banks retreat, private credit is asserting control over the flow of capital.
In Q3 2025, Wells Fargo’s CRE portfolio was 8% smaller year-over-year while U.S. Bank’s fell 5%. Citi and JPMorgan, by contrast, inched ahead (+3% and +1%). This bifurcation marks a turning point: traditional lenders are defensive, and non-bank capital has become the system’s marginal lender. The result is a market where credit is available—but at a higher price and from new gatekeepers.

Wells Fargo and U.S. Bank together shed over $20 billion of CRE exposure in a year, tightening risk screens and limiting refinance capacity. At the same time, debt funds flush with dry powder—estimated at $200 billion globally—are eager to deploy. They offer bridge and stabilization loans at 7–9% yields versus banks’ 5–6%, often adding profit participation. As a result, borrowers face a paradox: more lenders on paper, but fewer willing to lend cheaply. In practice, developers are re-engineering capital stacks with mezzanine and preferred equity to close the gap.

Smaller banks mirror the trend. Home Bancshares cut its CRE portfolio by $58 million (–1%) last quarter and Bank OZK reported $2.4 billion in loan payoffs. Such “quiet deleveraging” frees regulatory capital but shrinks the credit channel for middle-market borrowers. Developers in secondary markets increasingly turn to life insurers or debt funds for refis, paying 100–200 bps more. Meanwhile, non-bank originations rose ≈35% YoY, offsetting what might have been a broader credit contraction. The balance of power in CRE finance is no longer with deposit-funded banks.

Average CRE loan rates have nearly doubled since 2021—from ~3.8% to ~6.5% for core assets. Debt fund bridge loans often clear above 8%, while mezzanine and preferred equity returns reach 12–15%. Loan-to-value ratios have compressed to 55–65%, with tenors shortened to three-five years and interest-only periods used to maintain coverage. On balance, lenders are pricing discipline, not risk aversion: higher returns are the entry fee for liquidity in a still-uncertain macro environment.

The human adjustment is visible on the ground. A Texas developer summed it up: “Six months ago, my regional bank was a phone call away. Now they’re offering 50% leverage at a punitive rate—while debt funds are chasing me with capital that costs more but closes fast.” Sponsors are learning to treat credit funds as long-term partners and to budget for equity infusions. By contrast, banks are emphasizing credit quality over growth, trading volume for stability. The industry has entered its “discipline cycle.”

Investment sales data corroborate the shift. H1 2025 U.S. CRE transaction volume climbed ≈30% YoY, a rebound enabled largely by non-bank lending. Debt funds and insurers are providing liquidity that keeps maturities from turning to defaults. In turn, borrowers accept more structured financing: junior tranches, rate caps, and short tenors. It’s a market reliant on private balance sheets rather than public deposits — a durable but more expensive system.

Through 2026, CRE borrowing costs should remain 100–200 bps above pre-tightening levels. Even if the Fed eases, spreads will stay wide until loan performance stabilizes. Banks will favor extensions and modifications over foreclosures, relying on private capital to absorb subordinate risk. By early 2026, non-bank lenders could originate over half of all CRE loans, cementing their role as the primary liquidity source. Some money-center banks may re-enter selectively—industrial, multifamily, top-tier sponsors—but the system’s center of gravity has shifted. If regulators tighten oversight of private credit, the balance could adjust again; for now, market forces rule the field.