Private lending is commercial real estate debt provided by non-bank capital: debt funds, mortgage REITs, private credit vehicles and specialty finance companies. These lenders raise capital from institutional investors rather than deposits, which lets them underwrite faster, structure more flexibly, and lend on assets and timelines banks cannot. In exchange, they price higher.
That is the definition. The more useful fact is the scale.
Private lenders are no longer the alternative
In Q2 2026, alternative lenders originated 38% of non-agency commercial real estate closings, up from 34% a year earlier. Banks were second at 30%, life companies 21%, and CMBS 11%, down from 19% (CBRE).
The capital behind that is not opportunistic. More than 430 closed-end real estate debt funds have raised over $137 billion since 2020, roughly 16% of all commercial real estate fundraising over that period (JLL). New vehicles are still closing: Prospect Ridge closed its second real estate debt fund at $800 million on August 19, 2026, to originate senior and subordinate debt across asset classes.
If you are still treating private lenders as a last resort, you are ignoring the largest single source of non-agency commercial mortgage capital in the market.
What private lending actually costs
The honest answer is that it costs more than a bank, and the gap is narrower than most borrowers assume.
Private and debt fund lending on transitional commercial assets generally prices at a floating spread over SOFR, with pricing driven by asset type, leverage and business plan risk rather than by a published rate sheet. Bank permanent debt on stabilized product was averaging 5.7% in Q2 2026, with commercial mortgage spreads at 204 basis points and multifamily at 162 (CBRE). Private capital sits above that.
What you are buying for the difference is usually one of four things: speed of execution, leverage a bank will not write, a business plan a bank will not underwrite, or an asset class a bank will not touch.
That last one is worth an example. In August 2026, Starwood Property Trust and Realterm co-originated a $672 million financing across 78 industrial outdoor storage properties, 830 acres in 33 US markets, refinancing $486 million of existing debt for affiliates of Stonemont Financial Group and Cerberus Capital Management. Industrial outdoor storage is a category most banks have no framework for. A debt fund and a specialist operator wrote the largest financing the sector has seen.
Private lending vs bank lending
| Bank | Private lender | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Source of capital | Deposits | Institutional funds, investors | ||||||||||||||||||
| Typical use | Stabilized, cash-flowing assets | Transitional, value-add, ground-up, time-sensitive | ||||||||||||||||||
| Pricing | Lower | Higher, generally floating over SOFR | ||||||||||||||||||
| Leverage | More conservative | Will often go higher | ||||||||||||||||||
| Speed | Slower, committee-driven | Faster, discretionary capital | ||||||||||||||||||
| Structure | Standardized | Negotiated per deal | ||||||||||||||||||
| Recourse | More often required | More often non-recourse, deal-dependent | ||||||||||||||||||
| Regulatory constraint | Significant | Limited |
The row that decides most deals is speed, and it is the one borrowers underweight. A bank quote that is 150 basis points cheaper is worth nothing if the seller will not extend and the private lender can close.
The line between them is blurring
Two things are happening that make the old bank-versus-private distinction less useful than it was.
First, banks are financing the private lenders. As KeyBank Real Estate Capital's Alan Isenstadt put it, banks have "backlevered ourselves essentially by financing some debt funds and causing that margin compression," with the result that "we're competing against ourselves on two sides." A meaningful share of private lending is bank capital arriving through an intermediary.
Second, banks are competing on private lending's terms. To win deals back, Isenstadt noted, banks have to offer more flexible structures, faster execution and looser covenants. And they are re-entering: banks moved from 24% to 30% of non-agency closings year over year, and the Q2 2026 Senior Loan Officer survey showed banks easing standards on nonfarm nonresidential, multifamily and construction lending after a long tightening cycle.
Institutional capital is moving the other way too. PGIM, a life company, wrote an $82.6 million bridge loan on a stabilized 325-unit Class A multifamily property in New Jersey in August 2026. Bridge debt on stabilized institutional product from a life company is not what the traditional lender taxonomy predicts.
When private lending is the right call
Use a private lender when the deal has a clock, a story, or a gap.
A clock. A maturity, a purchase contract, a 1031 deadline, a seller who will not extend. Discretionary capital can close on timelines a credit committee cannot.
A story. Value-add, lease-up, repositioning, ground-up, a property that does not yet produce the NOI a permanent lender needs to see. Private lenders underwrite the business plan; banks largely underwrite the trailing twelve.
A gap. Your existing debt matures and the new permanent loan does not cover it. This is the fastest-growing use case in 2026, and it is not a distress story. CMBS delinquency reached 7.86% in July 2026, and Trepp's finding was that most loans transferring to special servicing did so because of refinancing challenges rather than property performance. Those are working assets that could not clear a refinancing test. Bridge debt from a private lender is frequently what carries them to a point where they can.
Use a bank when the asset is stabilized, the timeline is comfortable, and the cheapest capital wins. That is a real and common situation, and paying private pricing for it is a mistake in the other direction.
What about private credit risk
Worth addressing, because borrowers are reading the headlines.
There is genuine concern in the roughly $2 trillion private credit market, concentrated in corporate and software lending where AI is forcing a reassessment of business models. Real estate debt is a different exposure: loans backed by hard assets with contractual cash flows have largely performed as underwritten. That does not make real estate debt risk-free, and a lender's ability to fund at closing is worth diligencing. It does mean the corporate private credit story and the CRE private lending story are not the same story.
How to actually run the process
Do not choose the category first. Choose it last.
Underwrite the deal to today's tests, build a proper deal memo, and take it to both bank and private capital simultaneously. The spread between a bank at one price and a debt fund at another is real money, but so is the difference between a lender who will close in three weeks and one who will not close at all. You cannot evaluate that trade-off from one quote.
The most common unforced error in this market is calling three lenders you already know. In a year when 38% of the capital sits with alternative lenders you have probably never worked with, that is not a shortlist. It is a blind spot.
FAQ
What is private lending in commercial real estate?
Private lending is commercial real estate debt provided by non-bank capital sources such as debt funds, mortgage REITs, private credit vehicles and specialty finance companies. These lenders raise capital from institutional investors rather than deposits, which allows faster underwriting, more flexible structures and higher leverage than most banks offer, at a higher cost of capital.
How much of the CRE market is private lending?
Alternative lenders originated 38% of non-agency commercial real estate closings in Q2 2026, up from 34% a year earlier, ahead of banks at 30%, life companies at 21% and CMBS at 11%. More than 430 closed-end real estate debt funds have raised over $137 billion since 2020, about 16% of all commercial real estate fundraising.
Is private lending more expensive than a bank?
Yes. Bank permanent debt on stabilized commercial property averaged 5.7% in Q2 2026 with spreads of 204 basis points. Private and debt fund lending prices above that, typically as a floating spread over SOFR set by asset type, leverage and business plan risk. The premium buys speed, leverage, structural flexibility, or willingness to lend on assets banks avoid.
When should I use a private lender instead of a bank?
When the deal has a clock, a story or a gap: a hard deadline that a credit committee cannot meet, a value-add or ground-up business plan that a permanent lender will not underwrite on trailing income, or a maturing loan that the new permanent debt will not fully refinance. For stabilized assets on a comfortable timeline, a bank is usually the better answer.
Are private lenders riskier to borrow from?
The main practical risk is execution: confirm the lender's capital is committed and that they can fund at closing. Broader concern about the roughly $2 trillion private credit market is concentrated in corporate and software lending rather than real estate, where loans backed by hard assets with contractual cash flows have largely performed as underwritten.
Do banks and private lenders compete for the same deals?
Increasingly, yes, and the line between them is blurring. Banks finance many debt funds, which KeyBank's Alan Isenstadt described as banks having "backlevered ourselves." Banks have also moved from 24% to 30% of non-agency closings year over year and eased standards on commercial, multifamily and construction lending in Q2 2026, competing on the flexibility and speed private lenders established.