Real estate private credit funds are preparing for refinancing activity to pick up over the next 12 months as residential sales moderate after a strong multi-year run, with developers increasingly turning to structured debt to manage cash flows and rebalance their balance sheets, according to a report by The Hindu BusinessLine.
Rise in Refinancing Demand
“We see the need for refinancing capital to increase in the next 12 months because of reduction in residential sales volume,” said Vikas Chimakurthy, CEO – Realty Funds at Kotak Alternate Asset Managers. He noted that most private credit deployed over the last two years has gone towards land acquisition and growth, with only a part used for refinancing to address cash-flow mismatches.
Fund managers, however, said that the expected rise in refinancing is not a return to the distress-led lending that characterised the market a few years ago but instead a move towards strategic use of private credit in real estate. “The market has moved away from legacy promoter-bailout debt to more growth oriented capital,” Chimakurthy said.
Shift from Rescue Capital to Growth Capital
Saurabh Rathi, Co-head, Real Estate Funds at Motilal Oswal Alternates, said developers are now borrowing more for refinancing and acquisitions as they proactively restructure their balance sheets rather than simply stay afloat. “The recent softer residential sales have resulted in deal pipelines going up by 10 to 20 percent across the market as builders choose flexible capital over waiting on customer collections,” he said.
Rathi contrasted the current environment with the past: “Back then, a large chunk of real estate credit was rescue capital, coming in to fix something that had already broken. Today, developers are approaching private credit before there is a problem, not after. It has become a planning tool rather than a bailout.”
Amit Bhagat, Co-founder, CEO and Managing Director of ASK Property Funds, said private credit demand had shifted from "solution capital" before Covid, which included refinancing, lender exits and last-mile funding, to growth capital as residential sales recovered. “Going forward, as sales stabilise after the last few years of strong momentum, I believe demand will be more balanced, growth capital will remain relevant, but solution capital will also come back into focus,” Bhagat said.
Residential Projects Dominate Private Credit
Residential projects continue to account for the largest share of private credit investments, with the segment attracting more than 80 per cent of real estate credit because projects generate predictable cash flows through home sales, according to the report. Construction finance has also seen renewed demand, largely because banks have grown stricter about funding under construction projects, pushing some of that need toward private credit.
| Private Credit Segment | Key Characteristics (Source: The Hindu BusinessLine) |
|---|---|
| Land Acquisition | Banks and NBFCs cannot finance; left to alternative investment funds |
| Refinancing & Balance Sheet Restructuring | Expected to rise as sales moderate; used for cash-flow management |
| Construction Finance | Demand rising due to stricter bank norms on under-construction projects |
| Solution (Rescue) Capital | Historically for refinancing, lender exits, last-mile funding; now re-emerging |
| Growth Capital | Dominant in recent years; used for expansion and new projects |
Implications for Finance Executives
Private credit funds tailor repayment schedules to a project's sales cycle rather than follow fixed repayment structures. This flexibility is especially valuable as residential sales slow. According to the report, private credit retains an edge in construction-stage risk, bridge financing and structured acquisitions, where transactions require quicker execution and more flexible underwriting than conventional lenders typically offer.
For CFOs and treasury professionals in real estate, the data indicates that private credit will play an increasingly strategic role in managing liquidity and capital structure. The shift from rescue capital to proactive restructuring means that companies can access funds for refinancing before cash-flow strains become acute. However, the report also notes that banks and NBFCs cannot finance land acquisition or provide capital to restructure existing bank loans, leaving these segments to alternative investment funds—a structural gap that private credit funds are positioned to fill.
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