The real estate debt market is witnessing a significant shift as family offices and alternative lenders increase their influence. This trend reflects a broader capital migration from traditional banks to nonbank sources, creating a two-speed market that challenges conventional lending dynamics.

Family offices have significantly ramped up their participation in real estate lending, with allocations to direct lending increasing by 12% YoY from 2024 to 2025. Their growing role is indicative of a larger trend where institutional investors seek yield outside traditional avenues. This influx of capital allows for more flexible risk pricing and supports a diverse range of transactions, particularly in transitional and value-add projects. Increased family office involvement could lead to more competitive financing options for borrowers in these segments.

Lender finance facilities have expanded, with multiple funding lines over $500 million closed in 2025. This growth has enabled nonbank lenders to access capital more efficiently, thus increasing their market share in commercial real estate (CRE) lending. The availability of these funds has empowered nonbank lenders to fill the void left by traditional banks, particularly in smaller-market deals. Consequently, borrowers who previously relied on banks for financing are now exploring alternative sources, leading to a diversification of capital flow.

Nonbank and private credit now account for over 30% of new CRE debt originations, up from 23% in 2022. This increase reflects a growing acceptance of nonbank lending as a viable alternative to traditional bank financing. The trend is amplified in transitional and smaller-market deals, where banks have retreated. As nonbank lenders become more prominent, they are likely to set new benchmarks for pricing and structuring deals, which could reshape the competitive landscape of commercial real estate financing.

In gateway markets, nonbank lenders provided more than 40% of bridge and construction loans in 2025, compared to 28% in 2022. This significant increase underscores the vital role that nonbank lenders play in supporting development and transitional projects. Local operators are increasingly reliant on family offices and private credit funds to secure acquisition or recapitalization financing, often at spreads of 70–150 basis points above traditional bank loans. This shift could lead to varied financing conditions across different market segments.

The current landscape suggests that credit standards are evolving, fueled by a combination of family office capital and lender finance. As risk aversion and regulatory pressures continue to shape institutional behavior, nonbank lenders may find increasing opportunities to fill the gaps left by traditional banks. If this trend continues, it could result in a more fragmented credit market where well-connected borrowers enjoy better terms, while those without robust networks may face stricter conditions.