Real Estate Private Credit Fundraising On The Rise

Wall Street is crowding into a corner of real estate’s private credit market that shares key features with the one that’s landed Blue Owl in recent headlines.

Fortress Investment Group, Benefit Street Partners, Goldman Sachs, BlackRock and Rithm Capital have all recently launched non-traded mortgage REITs to capitalize on demand for private credit. The semi-liquid vehicles raise money from wealthy investors to finance real estate loans, bringing structures that have become increasingly common in corporate private credit into the commercial real estate market.

Newcomers have established themselves rapidly; seven of the top 10 non-traded private credit REITs in terms of fundraising have been launched in the past two years.

“It’s about to get pretty competitive and crowded,” said Michael Covello of Robert A. Stanger & Company, an investment bank that tracks non-traded REITs. He said he’s aware of two other big mortgage REITs coming to the market soon.

The products share similarities with the semi-liquid business development companies run by Blue Owl, Apollo, BlackRock and KKR that have garnered negative attention for limiting investor redemptions.

Like those funds, mortgage REITs face a core challenge: offering investors periodic liquidity while holding relatively illiquid assets.

Investors in these types of companies are free to pull their money out whenever they want, which can lead to a run on redemptions. In hard times, that could force the companies to sell assets at a loss in order to meet the redemption requests, further driving down the stock price and contributing to a downward spiral. In order to combat this, companies place limits on how much stock can be redeemed in a certain period, often 2 to 5 percent of net asset value a quarter.

When those limits are hit, companies gate redemptions — the same tactic that has recently generated scrutiny in other corners of private credit.

The broader private credit market took off in 2024 when banks pulled back on lending, and high interest rates enticed investors into the private market. Companies like Blue Owl and Apollo stepped in to fill a void, lending mostly to fast-growing software companies.

At that time, there wasn’t as much demand for real estate debt. The high rates stifled investment sales. And challenges in the office and multifamily sectors further tamped down lending.

But things have changed. The software market is starting to see cracks, and the real estate picture is improving, providing more opportunities to lend. Many think the troubles in corporate private credit could lead to some of that money transferring over to real estate.

“We do think there will be a recycling opportunity or a shift where some of the capital that went to corporate credit and private credit [will go] into real estate credit and other asset-based lending opportunities,” Madison Realty Capital’s Josh Zegen said at The Real Deal’s NYC Real Estate Forum earlier this month.

Now, there’s an open window of opportunity to get into the business. Business development companies primarily lend to software firms. As interest rates fall, the yields they offer to their investors compress. That makes the yields on real estate lending more attractive. If rates go too low, then equity investing becomes more favorable. That makes the mortgage REITs well positioned right now.

“They’re right in the sweet spot,” Covello said.

The non-traded REIT sector, to be clear, is just a small slice of the private credit pie. These REITs are often pitched to wealthy individuals, as opposed to the large institutional investors like pension funds and insurance companies that invest in the mega funds.

Goldman Sachs, for example, has raised about $280 million for its non-traded REIT. That pales in comparison to the investment bank’s latest real estate credit fund, which has raised $7 billion.

Still, firms are moving aggressively into the space. The largest of these companies, operated by Fortress, has raised more than $1 billion since it launched in June 2024.

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