“The Perfect Storm” for Private Real Estate Debt?

By Tommy DiBona, Vice President, Investor Relations, Archway Capital

Macro Environment – Tight Credit Conditions Remain Stubborn

For the better part of the past 24 months, we have all been inundated with headlines surrounding the volatility of the commercial real estate space. Leading the charge in the media frenzy were talking points surrounding the highest pace of interest hikes in the past 40 years, coupled with the volatility and decline in office assets across the country. 

Despite these headwinds across the space, there have certainly been some silver linings, particularly as it relates to the first half of 2025. While transaction volume remained relatively stagnant for most of 2023 and 2024, deal flow is increasing significantly as most operators have started shifting their focus to bridge lending, construction completion, and value-add projects. 

With the overall credit environment remaining relatively tight and regional banks continuing to stay on the sidelines, private lenders are now able to set the terms, pricing, and deal structures as they step in to fill the lending void. This sets up a highly opportunistic time for seasoned debt funds to capitalize on quality deals that would have historically been absorbed by banks, and there are signs that the void could continue to increase in severity, especially as the looming “maturity debt wall” grows closer and closer. 

Debt Wall Timing

According to data from S&P Global, there is roughly $998B in commercial real estate debt coming due throughout 2025, with roughly 65% of the total amount coming due in the final 6 months of the year. Adding in the fact that the data also shows an additional $1.15T and $1.26T coming due in 2026 and 2027 respectively, there is increasing likelihood of the path forward favoring private lenders as the main cohort poised to capitalize on significant market opportunities over the next 24–36 months. 

Opportunity Knocks for Real Estate Specialists

• Banks remain pulled back compared to their historical transaction volume 

  • While it is almost certain they will eventually reenter the space at some point, the average regional bank is not a seasoned real estate expert 

  • In this environment, sophisticated real estate borrowers will look to partner with experienced managers who have the expertise and track record to structure loans amidst the current environment 

• Repricing across CRE assets presents lending opportunities 

  • Cap rates expanding (asset valuations adjusting downward) present the opportunity for fresh capital to be deployed on assets with a reset basis 

• Refinancing challenges remain the common theme across the space, mainly due to significant loan maturities and the cost of debt remaining elevated 

• Both traditional assets and development deals are starved for capital

In Conclusion

Through investing in short-term real estate loans that are backed by quality collateral, on assets with a reset basis and conservative LTV levels, the current environment lays a strong foundation for lenders to be strategically aggressive and earn attractive risk-adjusted returns. The emphasis on “reset basis” is a crucial theme in Archway’s current outlook, as we believe most assets should have seen their cap rates expand given the characteristics of real estate capital markets over the past two years. 

Integrating private real estate debt exposure into an investment portfolio in 2025 can provide the benefit of a lack of correlation to public equities and traditional fixed income, exposure to real estate collateral without ownership risk, and should assist with anchoring private credit allocations via a “real asset” backing. Deploying fresh capital at a time when the macro fundamentals are in place to favor managers with the ability to sift through the noise provides the potential for enhanced portfolio resilience and stability.