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AltsWire - Since January, volatility in Washington has added new layers of complexity to the investment landscape. Once buoyed by resilient consumer spending and AI-driven optimism, equity markets have stumbled as investors weighed the risk of disrupted supply chains, higher costs, and slower global growth.
Yet amid this turbulence, bonds have quietly returned to form, resuming their traditional role as portfolio ballast. U.S. Treasurys and high-grade corporates have attracted meaningful inflows amid signs of a cooling labor market and slowing economy, which had reignited rate cut expectations.
However, recent volatility in longer-term yields – despite expectations for the Federal Reserve to cut rates by up to 100 basis points this year – underscores the importance of active duration management. In this environment, with a backdrop of geopolitical tensions and unpredictable trade dynamics, traditional bonds alone may not offer sufficient protection or return.
Private credit – especially strategies focused on senior secured lending, real estate credit or asset-backed deals – is proving to be a powerful complement to traditional fixed income. These investments typically deliver high, consistent cash flow, often in the 8% to 12% range, allowing portfolios to generate meaningful income while materially shortening duration.
Creating compelling opportunities for sophisticated investors who understand the dynamics at play. In a recent conversation on Peachtree Point of View, CEO Greg Friedman speaks with Christopher Marinac, Director of Research at Janney Montgomery Scott to explore how regulatory shifts, bank consolidation, and the rise of private credit are reshaping capital deployment in commercial real estate.
Regional and community banks are actively cleaning up their balance sheets, particularly around office exposure. Marinac notes that banks have already reserved for problem assets and are now focused on resolution. "Q3 coming up on reporting in October, as well as in the year end, fourth quarter, you're going to see a lot of losses taken at banks just to get rid of those office loans that are on the books."
This creates a dual opportunity: distressed asset acquisition for value investors and increased demand for alternative capital sources as banks reduce certain exposures.
Banks are increasingly recognizing that partnership models with private credit funds offer better risk-adjusted returns than direct lending in certain scenarios. "If a bank is willing to offer 50% or 55% leverage and a private credit fund is willing to do 70 or 65, that's a material difference," Marinac explains.
For borrowers, this means access to more flexible capital structures. For investors in private credit strategies, it signals growing institutional acceptance and deal flow.
After the turbulence of 2023 and early 2024, capital is flowing again. Marinac observes, "Liquidity is everywhere. Liquidity has actually stepped up another leg in the past 60 to 80 days." Banks need to deploy capital, but they are doing so selectively with improved underwriting standards and stronger debt service coverage requirements.
Smart investors should position themselves where capital scarcity still exists, particularly in transitional assets, value-add opportunities, and sectors where traditional bank lending remains constrained.
• Distressed Opportunities Are Materializing: Bank portfolio sales and charge-offs will accelerate through year end, creating acquisition opportunities for prepared capital.
• Private Credit Partnerships Are Essential: The relationship between banks and private lenders is evolving from competitive to collaborative, expanding financing options.
• Regulatory Environment Is Easing: The shift in administration is creating more favorable lending conditions, but banks remain disciplined after recent stress.
The next 12 to 18 months will define who capitalizes on this transition. Investors with dry powder, operational expertise, and strong lending relationships will find significant value creation opportunities as the market recalibrates.
Listen to the full conversation on the Peachtree Point of View podcast to hear more insights from Chris Marinac on bank consolidation trends, maturity wall strategies, and where lending appetite is strongest today.
Wall Street Journal | Credit shops frequently originate loans with higher financing levels than banks use, which translates to greater risk of default and loss, according to Moody’s. The sector is also lightly regulated and many private-credit firms have relatively short track records. Many didn’t exist when the 2007 subprime mortgage market meltdown triggered the global financial crisis that extended into 2009.
With fewer regulatory restrictions than banks, private-credit lenders can be more nimble in meeting market demands and borrowers’ needs, said Greg Friedman, the chief executive of Peachtree Group, an investment firm that makes commercial real-estate loans.
“Banks tend to be more reactive to historical performance, whereas private credit tends to be more proactive on the future outlook of the performance of the asset, and so risk can be viewed differently,” he added.
The typical loan-to-value ratio for the average bank loan backing a commercial property ranges from 50% to 65%, Friedman said. But the average ratio for private-credit loans runs from 60% to 75%, he said.
“It’s a very narrow bandwidth of who these regional banks, community banks and national banks want to lend to right now. So, if private credit didn’t exist, I think we’d be in a much more challenging environment for commercial real estate,” said Greg Friedman, managing principal and CEO of nonbank lender Peachtree Group. “We’ve seen a pickup of more opportunities coming our way where banks are unwilling to finance projects, and the regional banks in particular are really pushing borrowers to pay them off, and that’s forcing the borrower to seek other sources of capital.”
Interested in how private credit is stepping up amid market volatility and shifting CRE dynamics?
Read the full article here to see our CEO’s take on the evolving lending landscape and what it means for the future of real estate finance.
