Johnathan Rickman | Blue Vault
Amid growing concerns about the stability of private credit markets, a pair of credit sector experts told wealth advisors Wednesday that investing in private commercial real estate (CRE) debt can complement direct lending solutions in client portfolios.
“If you haven’t started on that journey … my first choice would be commercial real estate debt partly because the fundamentals look really strong … and because of its built-in diversification,” said Tony Davidow, CIMA, Senior Alternative Investment Strategist at Franklin Templeton during a virtual conversation hosted by Blue Vault.
The webinar focused on private CRE debt—mortgages, bridge loans, and construction loans—as part of a broad array of private credit opportunities beyond direct lending that also includes asset-based financing and infrastructure debt.
Sharing insights from two of his firm’s research papers, The evolution of private credit and 2026 Private Markets Outlook, Davidow characterized private CRE debt as an “early-cycle” investment solution with “low-to-negative” correlation to direct lending and distressed debt. “We think diversification across private credit makes an awful lot of sense in today’s market environment—both from a historical and a forward-looking perspective,” he said.
As income flows to direct lending have grown, spreads have become “much more compressed” and dry powder has piled up on the sidelines, Davidow said. “There is an awful lot of [private real estate debt] that will need to be financed over the next several years, and we don’t believe banks are going to be lending [the needed] capital,” he added.
The webinar’s moderator, Brook Scardina, Managing Partner, Capital Markets and Investments at Oak Real Estate Partners, said another way to look at private CRE debt was as a fixed-income optimizer. “You don’t have the duration [or] the interest rate sensitivity” with CRE debt, especially as it compares to the public debt sector, he said.
Advisors can use cash flows from CRE debt to “actively rebalance” a portfolio’s allocation framework or to reinvest it for the purposes of compounding, Scardina added.
Popping ‘Credit Bubble’ Concerns
Inevitably, concerns about overheated private credit markets made its way into the discussion, with one participant asking about Blue Vault data showing rising redemption rates for private credit as an asset class.
Davidow suggested the “noise” around private credit in the media and elsewhere may help explain rising redemptions. To quell the clamor, he reminded the audience of the sector’s many verticals, which he said respond to different market fundamentals over time.
“We don’t believe there’s a systemic problem across private credit, or systemic problems specifically in direct lending,” he said. Davidow noted that compressed spreads in private trades can create more risk, and that he wasn’t counting out a future uptick in direct lending defaults. However, he encouraged advisors to remember that “these are long-term investments and should be thought of as such.”
“The reality of it is, if we want to be rewarded … I think we need to be patient and allow the strategy to play out over the long run,” Davidow said.
Keep On Top of Private Market Trends
Keeping advisors up to date on industry trends and innovations is a core part of Blue Vault’s mission to expand understanding of investment solutions in private credit, real estate, and equity. Our webinars play a key role in that effort, and yesterday’s virtual session delivered timely insights while connecting advisors directly with sponsors.
Don’t miss out on future educational opportunities! Blue Vault members not only gain access to our library of previous virtual conversations, but they also enjoy exclusive use of our new searchable research portal. Now, wealth advisors can sort, filter, and analyze alternative investments like never before.
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