Understanding the Realities of Private Credit Stress

Anyone taking a look at private credit headlines over the past month might have reasons for concern. Goldman Sach’s issued a recent report, “Cracks in Private Credit,” while the Wall Street Journal proclaimed that “Private Credit’s Hot Streak is Over.”

And private credit stress is indeed impacting certain sectors. However, a CBRE report indicated that what’s happening on the corporate side isn’t an issue for commercial real estate that relies on private credit to finance projects.

At least, not yet.

A Private Credit Primer

“Private credit” is a catchall term for lenders outside traditional financing sources such as public bond markets or banks. Private credit lenders raise capital by offering investors the promise of higher yields than those of investment-grade bonds or public equity.

CBRE grouped the sector as follows:

Corporate direct lending. Senior secured-term loans and subordinated debt to middle-market borrowers. Business Development Companies (BDCs) are one of the lending vehicles in this category. Leverage can range from 4 to 6 times Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).

Asset-backed lending. Senior secured or subordinate exposure to consumer and commercial loan pools, including auto, credit cards, student loans or leases. Underwriting is based on historical loss curves and experience.

Commercial real estate loans. Senior secured or subordinate financing collateralized by CRE assets. Underwriting assumptions are based on loan-to-value (LTV), Debt Yield (DY) and Debt Service Coverage Ratios (DSCR).

The CBRE report commented that alternative lenders, including commercial real estate private credit and mortgage REITs, made up 40% of non-agency closings in Q4 2025, “making them a primary source of bridge, mezzanine and transitional financing in parts of the capital stack.”

Where the Risk Lies

While private credit accounts for a large share of CRE financing, it isn’t under stress. Private credit issues, at this time, are confined to the BDCs that have financed the software sector. BDCs are mainly corporate and middle-market lenders and have little to do with commercial real estate.

Here’s what’s happening with the BDCs:

Software concentration. Tech and software account for up to 40% of BDC loan books. AI disruption has raised many questions about borrowers’ long-term creditworthiness.

Mismatch in liquidity. BDC portfolios are illiquid and lack secondary-market depth. Redemption requests (which have risen over the past year) can generate “doom loop” feedback, putting pressure on funds.

Listed versus unlisted. Listed BDCs are exposed to price shifts based on market sentiment, while unlisted BDCs are more stable but have greater risks during redemption periods.

The CRE Impact

CBRE analysts commented that “private credit stress is not likely to escalate into market contagion,” given the limited link between BDCs and commercial real estate lending. CMBS markets are open for quality collateral, while hard asset lending remains relatively resilient.

However, the indirect impacts warrant close monitoring. These could include bank credit lines tightening across private credit vehicles, reduced confidence in limited partnerships (which could impact commercial real estate fundraising), and liquidation sequencing that could affect illiquid assets – like real property – at a later time.

Additionally, with the 2026 maturity wall exceeding $800 billion, reduced lending capacity might mean that “commercial real estate loan maturities coming due could find limited options, potentially causing distress or even a decline in values,” the report noted.