Subordinate Debt and the New Era of Real Estate Investing

Strong fundamentals, constrained bank lending, and reset property values have created opportunities for private credit investors

Key Takeaways

• Commercial real estate (CRE) fundamentals appear positive in early 2026, supported  by healthy property-level income, high occupancy and limited new supply.
• Banks are lending on CRE at reduced proceeds (lower leverage), creating openings for  private credit providers to supply capital at favorable yields and terms.
• Lending on reset property values at modest leverage enhances lender protections and  the potential for higher risk-adjusted returns.
• Subordinate lending may be particularly compelling, as it offers structural advantages  compared with other approaches, including flexible partnerships with senior lenders and avoidance of financial leverage risk.
• Strong industry fundamentals, constrained capital, and historically modest leverage all  appear to remain in place for commercial real estate debt in early 2026.

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Alternative investment strategies may not be suitable for all investors and are not intended to be a complete investment program. Alternatives may be relatively illiquid; it may be difficult to determine the current market value of the asset; and there may be limited historical risk and return data. Costs of purchase and sale may be relatively high. A high degree of investment analysis may be required before investing.
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