🗞️ Sunday Digest: Private Markets Insights
CRE special servicing hits $92B, GP-led secondaries surge, and private credit tightens its grip on the middle market.
Happy Sunday!
A record $92B in CRE loans are now in special servicing, as the Fed cautions prices in CRE may not reflect the full picture. This is a new post-GFC high. Meanwhile, on the private credit side, we are seeing an increase in use of payment-in-kind (PIK) structures. You know what else is rapidly growing? Continuation funds.
No rest for the weary LPs.
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🏢 CRE Distress Hits Tipping Point
Distressed CRE loan volume just hit a post-GFC high.
$92B in U.S. CRE loans are in special servicing (Trepp data, April 2025)
Office properties represent 41% of the total
Multifamily delinquency rate is rose 113 basis points to 6.57%.
Speaking of multifamily, here’s some data on new deliveries (in units) since 2020:
⚠️ The Fed Warning
A recent Federal Reserve report warns that commercial real estate prices may be masking deeper fragility. “Transaction-based prices may not fully reflect conditions,” it notes, due to low deal volume and limited liquidity. Forced sales in a thin market (due to borrowers being unable to refinance, for example) could cause significant price drops, even for assets that aren’t fundamentally distressed, cautions the Fed.
The chart below shows the average cap rate (or yield as a percentage of price) across all commercial real estate sectors. Despite recent market stress, cap rates remain below their long-term historical average:
On this note, here’s an article on how to evaluate track records and separate operational skill from luck (cap rate compression):
🤝 GP-Led Secondaries: Still Hot
GP-led continuation funds made up nearly half of 2024’s record secondary deal volume.
Deal Volume: the secondary market reached a record-breaking transaction volume of approximately $160 billion in 2024, with GP-led deals accounting for $71 billion, representing about 44% of the total volume.
Preferred Sectors: GP-led transactions were predominantly in sectors such as software, logistics, and business services.
Ardian's Fundraise: Ardian closed a record $30 billion secondary fund, marking the largest-ever fundraise in the secondary market.
📌 Read our full guide on secondaries here:
💳 Private Credit’s Relentless March
Apollo, KKR, and Ares now underwrite more middle-market loans than the top 10 U.S. banks combined.
Private credit surpassed $1.7T in global AUM
3 new private BDCs filed S-1s with the SEC in April alone
Capstone expects the use of PIK structures to grow, as rates are now only expected to decline moderately, and as 2020-2022 interest rate hedges roll off in the next 12-18 months.
Default rates, while edging up, are still historically low.
And since private credit isn’t going anywhere any time soon, this will help you evaluate this asset class:
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Not sure that average "yield" has any significance, Leyla. What impacted cap rates over the interval shown was mainly phases in the suppression of interest rates by the Fed. One can argue that it started in 1987, but certainly it was a big factor in interest rates and therefore cap rates from 2008 through 2021.