A strange thing is happening in commercial real estate lending. Banks are lending to the lenders who are taking their business. And they're doing it on purpose.

Since 2023, private credit has surged to fill the gap left by banks pulling back from CRE lending under tighter regulatory scrutiny. Private credit AUM has more than doubled from roughly $1 trillion in 2020 to over $2 trillion today, with projections of $4–5 trillion by the end of the decade. In CRE specifically, non-bank lending volume jumped 133% year-over-year in early 2026, while bank lending grew 80% over the same period.

But here's what the headlines miss: those two trends aren't opposing forces. They're deeply intertwined. Many of the same banks pulling back from direct CRE origination are actively providing the warehouse lines and repurchase facilities that fund the private credit managers replacing them.

The Back-Leverage Play

The mechanics are straightforward. Regional and national banks extend warehouse lines of credit and repo facilities to private credit funds. These funds use the leverage to originate CRE loans at rates and structures that banks themselves can't — or won't — offer directly. The banks earn a spread on the facility, typically SOFR plus 4–6%, while keeping the exposure classified as C&I (commercial and industrial) rather than CRE on their balance sheets. Under Basel III capital rules, that distinction means significantly lower capital requirements.

Between 2020 and 2024, the largest U.S. banks increased credit lines to private credit vehicles by roughly 145%, reaching approximately $95 billion. The growth shows no signs of slowing.

It's a rational trade for both sides. Banks maintain exposure to CRE economics and earn predictable facility fees without holding the underlying loans on their balance sheets. Private credit managers get access to capital at scale, enabling them to compete on speed and flexibility in ways that traditional bank origination can't match.

The Spread Compression Problem

This mutually beneficial arrangement has a side effect. As more capital flows into private credit — partly funded by the banks themselves — competition for quality deals intensifies. Global new-issue, direct lending spreads have fallen steadily, from 716 basis points in Q1 2023 to 544 basis points by year-end 2025. That's a 172-basis-point decline in under three years.

In CRE specifically, 10-year commercial mortgage spreads tightened 12 to 18 basis points across all four major property sectors in the first half of 2026. Deals that once attracted four or five competing bids now routinely see twenty-five lenders at the table.

What Changed at the Banks

The regulatory backdrop explains much of the shift. In April 2023, 67.4% of banks reported tightening CRE lending standards, driven by federal scrutiny of any bank whose CRE concentration exceeded 300% of total capital. By June 2025, that figure had dropped to just 9% — and by Q4 2025, banks easing CRE terms outnumbered those tightening for the first time since 2022.

Banks are back — but they're back in a different seat. Instead of competing purely on direct origination, many have found it more capital-efficient and strategically sound to operate one level up: providing the facilities that power the non-bank lenders now originating the loans banks once held.

The Irony — and the Opportunity

The resulting dynamic creates a paradox. Banks are financing the very funds whose growth is compressing the margins on the banks' own direct lending. They're simultaneously the suppliers and the competitors.

For borrowers, this is largely positive. More capital, more options, tighter pricing. For the market as a whole, the intertwining of bank and non-bank balance sheets raises questions that regulators are watching closely — especially as approximately $1.5 trillion in CRE loans mature between 2024 and 2026, creating refinancing pressure that both banks and private credit managers will need to absorb.

But what this evolving structure really underscores is the growing need for infrastructure that matches the complexity of the capital flows. Loans are being originated by non-bank lenders, funded by bank warehouse lines, and increasingly traded on secondary platforms. The plumbing needs to keep up with the market it serves.

At Soteria Market, we're building exactly that plumbing — the technology and marketplace infrastructure for private credit and loan trading. As the lines between bank and non-bank lending continue to blur, the ability to efficiently price, trade, and manage these assets across the capital stack isn't a luxury. It's the foundation the next chapter of this market will be built on.