Introduction: A Shifting CRE Lending Landscape
The commercial real estate market is undergoing a major transformation. Traditional banks have tightened credit because of rising interest rates and increased regulatory scrutiny, leaving borrowers scrambling for capital. Into this void step debt funds, private credit firms, family offices, and non-bank lenders who are now commanding a larger share of the market—particularly for transitional assets, value-add projects, and distressed opportunities.
The so-called “maturity wall“ in CRE—with over $950 billion in loans set to mature between 2025 and 2027—has intensified this shift. As highlighted by Apollo Academy, this liquidity crunch has created a massive opening for agile, yield-hungry capital providers. To thrive in this developing ecosystem, borrowers must master how to work with them.
Understanding Debt Funds & Non-Bank Lenders
Debt funds and non-bank lenders operate differently than banks. Rather than focusing on regulated underwriting criteria and conservative spreads, these players are:
- IRR-driven: Targeting double-digit internal rates of return, particularly on shorter-duration loans.
- Flexible: Willing to take on more complex, transitional, or opportunistic deals.
- Control-oriented: Often, structure deals with stronger lender protections and may require equity-style covenants.
As Geraci Law Firm notes, debt funds are favoring:
- Bridge loans for transitional assets
- Ground-up construction or redevelopment with experienced sponsors
- Recapitalizations and distressed acquisitions
According to Reuters, global private credit firms are aggressively launching new vehicles, particularly in markets where traditional banks are retrenching—a trend also observed by WSJ, which reports that firms like Carlyle are expanding private credit operations to capture this dislocation.
Key Underwriting Priorities
To secure funding from debt funds, borrowers must tailor their pitch to align with these lenders’ priorities:
- IRR & Time Horizon Expectations
These lenders prioritize yield. Your deal must demonstrate how their capital will be returned with strong, timely upside. Holding periods of 12–36 months are ideal. Be clear about cash flow timing and exit points.
- Exit Strategy Viability
Debt funds don’t want to be stuck. Provide:
- Multiple exit options: refinance, sale, or recap
- Comps or lender quotes showing a realistic takeout
- Plan B and C if the market shifts
- Sponsor Track Record & Execution Capability
They are betting on you as much as the asset. Highlight:
- Similar projects completed
- On-time, on-budget delivery
- Repeat lender relationships
- Asset Business Plan & Market Fundamentals
Debt funds love a clear story. Your deck should include:
- Market rent upside with comps
- CapEx strategy and value milestones
- Timing for stabilization or repositioning
As Apollo Academy observes, asset-specific business plans will separate winners from borrowers who get stuck as maturity risk mounts.
How to Approach These Lenders
Winning over debt funds starts with the packaging and presentation:
- Create a Clean, Professional Pitch Deck
- Include property images, summary metrics, business plan, and timeline
- Break down sources/uses, DSCR/LTV, and yield assumptions clearly
- Set Up a Data Room Early
- Lenders want immediate access to diligence: leases, reports, budgets
- Anticipate Risk Questions
- Address interest rate exposure, lease-up risks, construction contingency
- Showcase Execution Credibility
- Include bios, past deals, and equity partners
- Detail third-party vendors: GC, PM, leasing, etc.
Private lenders need to feel like you can deliver. Trust comes from competence and clarity.
Negotiating Term Sheets: What You Need to Know
Debt funds may be flexible, but they are not cheap capital. Here’s how to navigate the term sheet dance:
What’s Negotiable:
- Origination Fees: Often 1–3%, but can be lowered with leverage
- Exit Fees or Yield Maintenance: Try to tie these to hold period or performance
- Reserves: You may negotiate escrow timing or release triggers
What’s Less Flexible:
- Minimum IRR/Yield Floors: Often non-negotiable
- Recourse or Guarantees: Depends on deal profile and leverage
Protect Yourself:
- Prepayment Clauses: Understand penalties for early takeout
- Extension Terms: Lock in optionality, including fees and conditions
- Draw Mechanics: For construction or capex deals, clarify approval process
Post-Close Best Practices:
- Communicate Frequently: Monthly updates, budget vs. actual reports
- Honor Reporting Requirements: Missed reports = red flags
- Treat Them Like a Partner: Ask for feedback, flag problems early
Conclusion: Align, Package, Execute
In today’s environment, winning over debt funds isn’t about chasing the lowest rate—it’s about speaking their language. Borrowers who align their interests, present professional materials, and demonstrate a clear, executable plan will rise above the noise.
Treat these relationships as strategic partnerships, not just capital sources. With the right preparation, transparency, and mindset, alternative lenders can become repeat backers of your projects through multiple cycles.
Need help positioning your next deal to a private credit fund? Let’s talk.