Under current market conditions, private commercial real estate lenders can deliver value-added-level returns to their investors, at lower risk than equity vehicles, because private lenders command premium pricing for certain types of loans that banks effectively have been regulated out of making. Even with a considerably higher cost of capital than banks had precrisis, private lending funds have great potential for this strong risk-adjusted performance.

Emergence of private direct lending to commercial real estate

Private direct lending to commercial real estate emerged after the financial crisis of 2008. As understood today, this sector is distinct from hard-money lending or distressed lending. Rather, commercial real estate private direct lending came into existence to fill the vacuum created when traditional banks curtailed their lending activities due to cyclical and structural factors. The cyclical factors are largely in the past, but the bank-le