Pursuit of Yield Fuels Capital Formation in Real Estate Debt and NT Mortgage REITs

jackkearney54
Sep 29
4 min read

Highlights

Investor demand for real estate debt has accelerated in recent years, driven by elevated interest rates, pull-back from regional and national banks and the looming maturity wall.
Eight non-traded REITs focused on real estate debt have filed initial registration statements since the beginning of 2024. Four launched their offerings in 2025, while three additional REITs remain in registration but are not yet effective.
There are currently 16 REITs in this space with an aggregate net equity of approximately $8 billion. These REITs posted average returns of 2.0% in Q2’2025 and 8.7% for the trailing 12 months.

With investors chasing yield and stability in a tightening credit environment, interest in real estate debt investing has notably accelerated in recent periods, as the uptick in interest rates, pull-back from regional and national banks and the looming maturity wall have contributed to increased demand amongst non-bank lenders. Highlighting the shift from traditional lenders, MSCI notes that the overall market share of banks for commercial real estate lending declined from 40% in 2023 to 28% in 2024, as these traditional lenders have sought to prioritize risk management in the face of concerns over rising rates and potential defaults.

Conversely, CMBS and investor-driven lenders have experienced significant growth in the debt market, with originations by CMBS lenders increasing to a 22% share of the market in 2024, largely attributable to a 143% year-over-year increase in loan volume. According to the Mortgage Bankers Association’s quarterly survey, total commercial and multifamily mortgage originations were 66% higher in Q2 2025 than one year prior and 48% higher than the prior quarter, as investor-driven lending rose by over 90% year-over-year. Regarding the impending maturity wall, data from S&P Global Market Intelligence shows that approximately $1 trillion in commercial real estate and multifamily debt is scheduled to mature in 2025, which will force borrowers to refinance at current rates.

In response to these dynamics, investment managers have rolled out a growing number of semi-liquid vehicles targeting real estate debt in recent years. Since the start of 2024, eight non-traded REITs centered on this strategy have filed initial registration statements. As of June 30, 2025, there were 15 active non-traded REITs focused on real estate debt with active offerings, with a combined net equity of over $7 billion; FS Credit Real Estate Income Trust is the largest among them, accounting for approximately 35% of the market. During the first quarter of 2025, the non-traded mortgage REITs in our survey collectively raised approximately $1.3 billion in gross proceeds (including any amounts raised pursuant to each REIT’s reinvestment program), setting a new quarterly high for the sector, while the estimated total for the second quarter is on track to be on par with the record set in Q1.

The following table presents a summary of information for active real estate debt-focused REITs, including: (i) the date for each REIT’s initial registration with the SEC; (ii) net equity as of June 30, 2025; (iii) each REIT’s respective share of the market; and (iv) total returns calculated on a year-to-date basis and over the three- and 12-months ended June 30, 2025, assuming reinvestment of distributions, where applicable:

Four of these REITs launched their offerings in 2025, while three additional REITs remain in registration but are not yet effective. For the REITs included in the table above that perform regular valuations, the average return was 2.0% during the second quarter of 2025 and 8.7% for the trailing 12 months, while the FTSE NAREIT Mortgage REITs Index returned -1.9% and 8.0% over those respective periods.

Sources

SEC Company Filings for:
- AB Commercial Real Estate Private Debt Fund, LLC
- Baseline CRE Income Fund
- BlackRock Monticello Debt Real Estate Investment Trust
- CNL Strategic Residential Credit, Inc.
- First Eagle Real Estate Debt Fund
- Fortress Credit Realty Income Trust
- Forum Real Estate Income Fund
- Franklin BSP Real Estate Debt BDC
- Franklin BSP Real Estate Debt, Inc.
- FS Credit Real Estate Income Trust, Inc.
- Goldman Sachs Real Estate Finance Trust
- InPoint Commercial Real Estate Income, Inc.
- Invesco Commercial Real Estate Finance Trust, Inc.
- Origin Real Estate Credit Interval Fund
- Pender Real Estate Credit Fund
- PIMCO Flexible Real Estate Income Fund
- Principal Credit Real Estate Income Trust
- Redwood Private Real Estate Debt Fund
- Starwood Credit Real Estate Income Trust
MSCI Inc., Q1 2025 Capital Trends: U.S. Big Picture
MSCI Inc., February 2025 Capital Trends: U.S. Big Picture
Mortgage Bankers Association, 2024 Commercial Real Estate/Multifamily Finance Annual Origination Volume Summation
Mortgage Bankers Association, Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations | Q2 2025
Nareit
S&P Global, Commercial real estate maturity wall $950B in 2024, peaks in 2027

Disclaimer: The information contained in this research note has been assembled using publicly available information. While SK Research and Due Diligence, LLC (“SKRADD”) believes it to be reliable, there is no guarantee that all of the information contained in this research note is or will be accurate. This research note does not constitute investment advice and is intended for informational purposes only. This research note does not constitute an offer to sell or the solicitation of an offer to purchase, nor should it be considered a recommendation of any security referenced herein. This publication is copyrighted, and no person is authorized to make use of the information presented herein without the express written permission of SKRADD. SKRADD is under common ownership and control with Snyder Kearney, LLC, a law firm that conducts due diligence reviews of alternative investment programs, including non-traded real estate investment trusts.