For most of my career, the financing conversation for a mid-market developer started with a call to a regional or community bank you’d worked with for years, and the underwriting leaned as much on relationship and reputation as it did on the model. That world hasn’t disappeared, but it has shrunk, and private credit funds have filled the space it left behind — quietly, and faster than most sponsors our size have adjusted to.
The reasons are structural, not cyclical. Post-2023 regulatory capital requirements made construction and bridge lending more expensive for regional banks to hold on balance sheet, right as several high-profile regional bank stresses made their credit committees more conservative on commercial real estate concentration generally. Private credit funds, raising capital from institutions and family offices explicitly seeking real-estate-adjacent yield, stepped into exactly the gap that created.
What actually changed for a borrower
Three things, in our experience financing across the Kaufman & Company platform. First, speed: a private credit fund with discretionary capital and no loan committee calendar can close in weeks where a bank might take a quarter. Second, structure: private lenders are far more willing to underwrite to a pro forma stabilized value than to as-is collateral value, which matters enormously for value-add and ground-up deals. Third, and this is the part sponsors underweight, price discipline moved from the rate to the covenant package.
A private credit quote that looks two hundred basis points more expensive than a bank quote can still be the better loan once you price in the bank’s recourse requirements, reserve covenants, and reporting burden. We’ve walked away from lower-rate bank term sheets because the covenant package would have constrained our ability to execute the business plan, and taken the private credit deal at a higher coupon because it let us actually run the project the way we underwrote it.
Where the relationship still matters
None of this means the banking relationship is dead. Banks remain the cheapest source of capital for stabilized, cash-flowing assets, and a strong bank relationship still matters enormously for deposit relationships, treasury services, and the kind of flexibility that shows up when a deal hits a bump a covenant technically allows the lender to call. What’s changed is that the construction and bridge phase of the capital stack — the highest-risk, highest-need-for-speed phase — increasingly runs through private credit first, with the bank relationship picked back up at permanent takeout.
For mid-market developers still treating their community bank as the default first call on every deal, the cost isn’t always the rate. It’s the deals that die in a loan committee calendar while a competitor with a private credit relationship already has a signed term sheet.
