Private Credit Matches Equity Returns, Challenging Real Estate Fundraising

Written by:

Rudi Davis

Date:

29 Mar 2026

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Real estate developers now face challenges raising equity capital as private credit funds offer investors current-pay returns of 10% to 15%. These returns nearly match projected equity returns, with lower risk and faster payouts. Ryan Reich, Founder and Chief Investment Officer of Mountain Shore Properties, calls this “not a particularly attractive environment for raising equity right now.”

Traditionally, equity investors accepted delayed but potentially higher returns based on long-term property appreciation. Private credit investors settled for lower but more secure and immediate income. That distinction has blurred. Today, private credit offers returns close to equity, while providing greater security and liquidity.

“Equity returns on real estate are, net net, thirteen to eighteen percent,” Reich says. “It’s a challenging sell to raise equity at a forecasted return of fifteen or sixteen percent when you can put your money in a private credit fund and lend to the same asset class for thirteen or fourteen, fully secured.”

Private Credit Growth Drivers

Private credit’s rise is tied to post-2008 regulatory changes on banks. Higher capital requirements forced banks to hold more reserves, making traditional lending more costly and less accessible. Non-bank lenders, not subject to the same rules, filled the gap.

“Bank financing has become harder and harder to get at competitive prices,” Reich explains. “All that lending that was regulated and highly visible goes off-balance sheet to private credit. Private credit has exploded over the last five to seven years.”

Private credit funds now offer rates of 8% to 15%, higher than traditional bank loans and competitive in today’s market. For investors, this means attractive, secured returns paid regularly. For developers, financing is available, though more expensive than pre-crisis bank loans.

Reich calls this a “shadow banking system” that provides much of the development financing banks once handled. Regulatory constraints remain, so private credit’s role appears permanent rather than temporary.

Challenges for Equity Investors

Equity fundraising now requires convincing investors that long-term equity benefits justify the higher risk and delayed payout. Equity offers durable returns and avoids reinvestment risk, but its appeal is harder to communicate compared to private credit’s straightforward cash distributions.

“Current pay is like, I invest in a bond, I get ten percent every year in cash,” Reich says. “But if I do a hotel and my return is fourteen percent IRR over ten years, that’s compounded. The equity multiple is larger at the end of ten years than if you just took your ten percent every year. That’s the sales pitch to equity. The returns may not be as high, but they’re durable and longer term.”

Private credit investments are typically short-term, lasting 18 to 24 months. When they mature, investors face reinvestment risk and transaction costs. Equity locks in capital for a full decade with a defined return profile.

Long-Term Value of Equity

Developers must emphasize operational expertise, market selection, and value creation that private credit cannot match. Equity investors benefit from potential appreciation, strategic oversight, and stable returns over time, rather than immediate income alone.

Equity remains essential for projects requiring long-term capital commitments, complex development, or significant operational input. Communicating these advantages clearly is key to raising funds in the current environment.

Market Outlook and Implications

The outlook for equity fundraising may improve if interest rates decline or the yield curve steepens. Lower short-term borrowing costs could make banks more competitive and push private credit rates down. Reich notes early signs of this trend in 2026, though global uncertainty makes timing unpredictable.

Private credit is now a permanent fixture in real estate finance, offering returns that compete directly with equity. Developers must go beyond numbers, emphasizing long-term benefits and operational expertise. Investors must weigh risk, liquidity, and long-term payoff rather than chasing headline yields.

As private credit grows, competition for capital will intensify. Developers who can clearly articulate and deliver the advantages of long-term equity investment will succeed in attracting the funds needed for new real estate projects.