Private Lending Is Slowing Down – Not Because the Market Is Bad, but Because Nobody Knows What's Next

Written by:

Alejandra Rodriguez

Date:

30 Jul 2026

Share

Share via Facebook

Share via Linkedin

Share via X

Copy to clipboard

In a falling market, real estate investors can adjust. They recalculate timelines, revise budgets, and wait for the bottom. The current environment presents a different problem, one harder to plan around. Across private bridge lending, deal flow hasn’t collapsed so much as stalled, with borrowers and investors sitting on capital they can’t confidently deploy. The issue isn’t that conditions are poor. It’s that conditions are unclear.

According to Boris Dorfman, founder and fund manager of LBC Capital Income Fund, a California-based private real estate debt fund operating for roughly 15 years, the market is frozen less by distress than by indecision. “Market hates uncertainty,” he says. “Uncertainty is a lot worse than bad. It’s very hard to budget for uncertainty. When it’s bad, it’s very easy to adjust.”

The Urgency Has Left the Room

One of the clearest indicators of the current slowdown isn’t default rates or pricing corrections; it’s the disappearance of urgency from transactions. A few years ago, private bridge lenders built their business on speed: when a bank declined a loan at the last minute, a fund like Dorfman’s could close in three to seven business days. Buyers on seven-day contracts who couldn’t perform would lose the deal entirely.

That pressure has evaporated. Sellers now grant 30-day extensions. Buyers who miss deadlines get second chances. “If for some reason they’re still getting the seven-day contract, things don’t work out, the seller will give them an extension,” Dorfman says. “Things are not moving as fast as they did.”

For borrowers, reduced urgency means more time to secure conventional financing, which undercuts the primary reason many turned to private lenders in the first place. The core offering – speed – has become less essential, not because the service changed, but because the urgency that created demand for it has dissipated.

Thin Margins Are Killing Deals

Beyond pacing, the economics of value-add real estate have tightened to a point where deals that penciled comfortably a few years ago no longer work. Dorfman describes a common scenario: a borrower purchasing a property for a million dollars with a $200,000 rehab budget. Previously, that project might sell for $1.6 million, leaving room for cost overruns and timing delays. Today, the profit margin on the same project might be $70,000 to $80,000.

At those margins, even small variables, a month of construction delay, a 10% increase in materials, the difference between a 10% and 11% interest rate, can eliminate the profit entirely. Dorfman says he regularly reviews budgets with borrowers and pushes back. “Dude, what the hell are you doing? You’re breaking even. Best case scenario, you’re going to feed your workers, you’re going to feed us, but you’re not making any margins.”

Deals are falling apart not because financing is unavailable, but because the numbers no longer justify the risk. Borrowers who proceed anyway are essentially betting on appreciation – what Dorfman calls “the gambler” approach – rather than locking in a margin they can control.

The fund’s response has been to tighten underwriting standards around borrower quality. The typical borrower now carries a FICO score of 660 or above, has multiple prior projects, and owns existing real estate. “Real estate rarely gives you problems,” Dorfman says. “People give you problems all the time.”

What’s Still Moving

Despite the broader slowdown, certain deal types continue to transact. Owner-occupier purchases – a dentist buying an office, an attorney acquiring practice space – remain active because SBA loans take roughly three months to close and most sellers won’t wait that long. The fund recently closed a 65-unit apartment building acquisition in the Chicago area and a warehouse acquisition in Florida.

A consistent source of demand comes from borrowers who are cash-poor but property-rich, people with significant equity in real estate but limited liquidity who need to recapitalize for operations or to complete other projects. “You have $5 on the account and 20 million equity in real estate,” Dorfman says.

Watching for a Catalyst

The fund expanded geographically from California into nearly nationwide lending several years ago, driven partly by diversification logic and partly by more favorable lending laws in other states. Dorfman notes that migration patterns now matter more than ever for underwriting decisions, citing North Carolina and Tennessee as areas attracting population growth, and office space as an asset class that lost momentum but is showing early signs of recovery.

The primary variable the fund is watching is interest rates. “Half a percent drop in interest rate will generate a lot of real estate activity,” Dorfman says. “Just half a percent on both residential and commercial.” But the catalyst doesn’t have to be a rate cut specifically; it needs to be clarity. “It may not have to fall necessarily, but maybe we’ll see where the direction of future interest rates is; people will start transacting a lot more.”

Dorfman says there is substantial capital – individual and institutional, including his own fund – waiting on the sidelines for conditions to resolve. His preference is movement in any direction over the current stasis. “From my perspective, I don’t want to see the market go up or down. I just don’t want to see it moving sideways.”

About the Expert: Boris Dorfman is founder and fund manager of LBC Capital Income Fund, a California-based private real estate debt fund operating for approximately 15 years with a focus on bridge lending across residential and commercial real estate.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.