Family offices and the private real estate credit shift

A shift towards private credit is taking place among family offices, sophisticated real estate investors and high-net-worth individuals. Property ownership has long been a lucrative strategy, but with changing economic times a rethink is prudent.

Elevated interest rates, compressed cap rates, operational complexity and uncertain exit environments now define the market. Discerning investors are increasingly allocating capital toward private real estate credit rather than relying solely on direct equity ownership — embracing it as a defensive strategy within a broader portfolio. The appeal is not greater upside, but structural repositioning: downside protection, duration control and more predictable cash flow.

The changing market environment

The conditions that heavily favoured equity ownership during an era of record-low interest rates have changed. The Federal Reserve raised rates aggressively in early 2022, with the federal funds rate climbing from near zero to 5.5% in barely twelve months — the highest level since 2001.

Commercial real estate transaction volumes declined significantly from 2023 to 2025 as financing conditions tightened, and cap-rate expansion has pressured valuations across office, multifamily, industrial, retail and hospitality property. These conditions demand more discipline, selectivity and attention to risk-adjusted returns.

The risks hidden in direct ownership

Direct ownership can still generate significant long-term wealth, but it carries layers of operational and market risk many investors underestimate — risks that only intensify when interest rates rise:

• Tenant exposure

• Construction execution risk and cost overruns

• Refinance and market-timing risk

• Liquidity constraints

• Asset management burden

• Rising insurance and tax costs

In transitional and value-add projects, outcomes often hinge on execution quality and market conditions at exit. That volatility has prompted many investors to seek complementary exposure through credit.

Why credit sits differently in the capital stack

Debt and equity behave fundamentally differently across strong and weak markets. The capital stack typically runs from senior debt and mezzanine debt through preferred equity to common equity. Equity has unlimited upside but is first to absorb loss; credit sits at the top of the stack and sacrifices a degree of upside in exchange for the greatest structural protection.

In an environment of higher rates and greater volatility, that makes credit increasingly attractive as a defensive asset within a balanced portfolio.

The value of predictable duration and cash flow

Predictability and duration control become more important in volatile markets. Shorter-duration lending with defined maturity timelines offers cash flow consistency, repricing flexibility, reduced dependence on appreciation and better portfolio liquidity management. Global private credit assets under management have now surpassed $1.7 trillion and continue to expand.

Real estate credit as a complementary allocation

Sophisticated portfolio construction is rarely about choosing one asset class exclusively. Real estate equity remains valuable, but against a tide of rising rates and volatility it is not as attractive as it once was. Rather than abandoning equity, many family offices are diversifying into private credit to balance growth and preservation — combining equity and credit exposure within a single risk-adjusted framework.

The role of private credit in California

California’s value-add and transitional markets continue to create strong demand for flexible private credit. Investors often require financing that traditional banks are less willing or able to provide quickly, driving demand for:

• Transitional lending

• Rehab and construction financing

• Time-sensitive acquisitions

• Financing for experienced operators amid bank retrenchment

Many of these projects involve short-term uncertainty, renovation risk or lease-up periods that traditional lenders are reluctant to finance. Private credit providers can customise loans quickly and accommodate transitional business plans, helping investors capitalise on repositioning and redevelopment opportunities.

Find out more about real estate private credit

For many sophisticated investors, private real estate credit is emerging not as a replacement for equity ownership but as a complementary strategy focused on structure, discipline and downside awareness. The Central Mortgage Income Fund (CMIF) is a California-focused private credit fund that originates and acquires real estate-backed loans, delivering consistent, risk-adjusted returns from short-term, senior-secured loans underwritten with first-position liens and conservative loan-to-value ratios averaging 65%.