**How Banks Are Benefiting from the Rise in Private Real Estate Credit**
*By Clayton Ross, Director, JLL NY Capital Markets*
Commercial real estate capital markets activity surged in 2024, with momentum accelerating in the latter half of the year, particularly in the lending sector. Lower borrowing costs compared to 2023, coupled with abundant debt capital, have fueled a significant increase in commercial real estate lending. The Mortgage Bankers Association projects a 28% rise in loan originations volume for 2025.
Between 2022 and mid-2024, banks’ share of direct real estate loans in the U.S. declined from 48% to 31%, according to Real Capital Analytics. This shift followed regional bank failures in 2023 and the anticipated implementation of Basel III Endgame regulations, prompting banks to adopt a more cautious approach.
During this period, traditional bank lenders expanded their real estate lending strategies by increasing indirect lending through warehouse lines and note-on-note leverage. This adjustment allows banks to finance only the senior tranche of a loan, while private debt funds cover the subordinate portion. As a result, banks reduce their overall credit risk exposure while classifying these loans as commercial and industrial (C&I) credits.
S&P Global projects that over $1 trillion in real estate loans will mature annually from 2025 through 2027. Roughly half of these loans were originally issued by banks flush with COVID-era liquidity. With lender activity now more evenly distributed across different institution types—and banks playing a supportive role through C&I-based financing—JLL anticipates a significant volume of refinancing activity in the commercial real estate sector.
By broadening their lending approach, banks redistribute risk while maintaining indirect exposure to real estate collateral. Providing warehouse lines and note-on-note financing to private debt funds allows banks to mitigate potential losses in case of loan defaults. These lending structures also help banks comply with regulatory requirements, such as Basel III and Dodd-Frank.
JLL’s Lender Finance Group is actively partnering with debt funds to structure warehouse lines, enabling funds to leverage loans more efficiently while benefiting from lower-cost bank financing. Recently, JLL advised a West Coast-based debt fund on structuring two credit facilities totaling $850 million. Additionally, JLL’s Miami office is currently working to close a $50 million note-on-note financing deal for a private equity firm originating a new mortgage.
With a wave of commercial real estate loans set to mature in 2025—particularly in the office and multi-housing sectors—borrowers are likely to explore non-traditional financing solutions. Debt funds, which historically offer higher loan-to-value (LTV) financing, enable borrowers to secure more debt proceeds while reducing the need for additional equity in acquisitions or cash-in refinancings. Thanks to back-leverage from banks, these debt funds are able to push leverage higher on their whole loans, thereby minimizing borrowers’ capital requirements compared to traditional financing sources. In response, banks are forming dedicated note-on-note teams to support their private credit clients.
As 2025 unfolds, private credit funds—less constrained by regulations and offering more flexible, higher-leverage lending options—will continue to fill the financing gap. Meanwhile, banks are increasingly leveraging indirect lending to expand their C&I portfolios. This shift injects fresh liquidity into the commercial real estate market, ensuring timely refinancing solutions and helping to lower the average cost of debt capital.
