Insights & Perspectives

• The market is entering an early structural rotation, where private credit is no longer the dominant destination for capital after years of strong inflows into this strategy.
• The shift is being driven by a deterioration in the risk-return balance: lower compensation for risk, liquidity concerns, and a new interest rate environment.
• Capital is not exiting abruptly, but it is being steadily reallocated toward real estate and more flexible, active strategies.
• The winners will not be everyone, but those who execute best: the key will lie in structuring, selecting, and capturing inefficiencies in this new cycle.
• KBIS Capital is betting on a strategy that combines protection, stable cash flows, and risk mitigation.

Over the past decade, private credit absorbed massive capital flows, driven by low interest rates, the search for yield, and the retreat of banks, becoming one of the main allocation strategies.

However, cracks are beginning to appear due to spread compression, deterioration in credit quality, and questions around liquidity in certain vehicles, leading investors to rethink their exposure.

“We believe we are in an early phase of a structural rotation, not simply a short-term tactical adjustment,” explain KBIS Capital representatives, a real estate investment manager and capital allocator focused on U.S. real estate assets. “What we are seeing is not just volatility, but structural tensions.”

They point to a greater institutional focus on downside protection, a reassessment of allocations toward asset-backed strategies, and growing interest in hybrid approaches within real assets.

In KBIS Capital’s view, “this does not suggest a pause, but a strategic rethinking of capital allocation.”

According to an article from CRE Daily, volatility in private credit is driving renewed interest in commercial real estate.

In this context, non-traded REITs (real estate investment trusts) and private equity real estate opportunities are attracting more capital after previously experiencing outflows.

While commercial real estate valuations remain about 22% below their 2022 peak, they are showing signs of stabilization.

As a result, these instruments are positioning themselves as an alternative for those seeking stable income and diversification.

Part of the capital that previously flowed into private credit is now shifting toward real assets, with a particular focus on industrial, medical outpatient,  and multifamily segments.

As consulting firm McKinsey notes, “the conditions that once amplified returns—such as falling interest rates, multiple expansion, and abundant leverage—have disappeared,” giving way to a more demanding market where value creation increasingly depends on execution.

In this context, results will depend more on key decisions such as asset selection, entry price discipline, operational value creation, and risk and liquidity management.

According to the Global Private Markets Report 2026 by McKinsey, “the real estate sector is evolving” and “capital is circulating again,” although momentum is concentrated in specific sectors and strategies.

For the report’s authors, “the current cycle is characterized by strong execution, capital structure discipline, and platform scalability. These dynamics create significant opportunities and new challenges for value creation.”

What Is Happening in Private Credit

KBIS Capital notes that the deterioration in private credit has not been abrupt, but structural. Defaults are beginning to rise, reflecting pressure on borrowers in a higher-rate, lower-liquidity environment.

At the same time, spreads have compressed, reducing compensation for the risk taken—largely due to the heavy capital allocation into this strategy in recent years.

An additional challenge: some vehicles offer liquidity to investors while being exposed to assets that may become difficult to exit in stress scenarios.

The result is an increasingly crowded strategy, with tighter returns and more visible risks.

In this context, KBIS Capital summarizes the shift across three key dimensions: liquidity frictions in certain vehicles under adverse conditions, a growing imbalance between risk and return, and a cost of capital redefined by the new rate environment.

Under this scenario, the firm concludes that the main driver of rotation is no longer yield-seeking, but a more rigorous reassessment of risk-adjusted return.

Where Capital Is Moving

A Reuters article notes that private credit expanded following banks’ retreat from riskier lending, becoming a key source of financing for companies.

According to Morgan Stanley data cited by Reuters, private credit accounted for nearly 30% of the U.S. leveraged finance market in 2025, up from 13% a decade earlier.

However, concerns have emerged about credit quality following cases such as the bankruptcy of auto parts supplier First Brands, raising doubts about underwriting standards in the private credit market, the outlet reported in another article.

“Morgan Stanley forecasts an annual private credit default rate of 8% between the second half of 2026 and the first half of next year, driven primarily by difficulties in software companies,” Reuters reports.

Against this backdrop, capital is beginning to reorient quietly but steadily.

KBIS Capital describes an incremental reallocation process, with investors gradually adjusting portfolios in response to the new environment.

This shift is already visible across multiple fronts. Family offices and sophisticated investors are increasing exposure to opportunistic real estate strategies, seeking to capture value amid current dislocations.

Institutional mandates are also moving toward more flexible approaches, shifting away from pure credit in favor of structures that combine multiple return sources.

There is also growing interest in co-investments and special situations within real estate, where better entry conditions can be accessed.

In this transition, investors are moving from passive, yield-focused strategies toward more active approaches aimed at identifying and exploiting market inefficiencies.

The Rotation Is Already Underway

Beyond recent movements, what is happening reflects a deeper market dynamic, where capital flows tend to reallocate in cyclical patterns.

This rotation is not isolated, but part of a broader process that explains why interest is shifting across asset classes.

According to KBIS Capital analysts, this follows a classic financial market pattern: capital chases returns, strategies become crowded, returns compress, risks become more visible, and eventually, rotation occurs.

In that cycle, private credit appears to have reached an inflection point. At the same time, KBIS Capital notes that real estate is going through a transitional phase.

While not all sectors have bottomed, much of the price adjustment has already taken place, liquidity remains constrained, and refinancing pressures persist.

This context is creating entry asymmetry that favors investors with patient, flexible capital, opening an attractive window to invest under better conditions than in previous years.

Why Real Estate Is Gaining Appeal

Real estate is re-emerging as a natural destination for capital for several reasons.

It offers backing in tangible assets, allows direct intervention in value creation, and provides multiple return drivers—from income to appreciation and development.

The central element today is asymmetry.

According to KBIS, real estate currently offers a better risk-return profile, particularly in opportunistic strategies.

In private credit, investors earn a fixed interest, limiting upside while risk may increase if the borrower struggles.

In contrast, real estate allows entry at already-adjusted prices, creating potential not only for income but also for asset appreciation, operational improvements, and better investment structuring.

In some cases, KBIS notes that there are opportunities with “credit-like” entry profiles but with equity-like return potential—something it sees as difficult to replicate in traditional private credit.

Where the Real Opportunity Lies

The most attractive opportunities are not evenly distributed, but tend to concentrate in segments where the dislocation is more technical than systemic.

In this context, KBIS identifies several clear areas of focus. On one hand, recapitalizations, where equity gaps have emerged as a result of tighter financing conditions, higher rates, and reduced credit availability.

“It is not a broad-based distress scenario, but rather a technical and structural dislocation, which is often the most attractive type of opportunity,” they explain.

On the other hand, debt maturities (so-called “maturity walls”) are creating increasing pressure, as many assets must be refinanced in a less favorable environment, forcing decisions such as capital injections, asset sales, or restructurings.

Opportunities are also emerging in distress situations, although selectively rather than broadly.

This is further complemented by development under new cost bases. Current projects are being structured at significantly lower entry prices compared to the previous cycle, improving risk-adjusted return potential from the outset.

Additionally, KBIS highlights specific niches with strong cash flow generation capacity, such as the Medical Outpatient Buildings segment, where particularly attractive cash-on-cash returns are being observed, driven by stable demand, long-term leases, and lower cyclical sensitivity compared to other real estate asset types.

KBIS Capital’s Positioning in This Cycle

KBIS positions itself directly within this market transition, with flexibility as a core advantage. “KBIS is particularly well positioned because it is not limited to a single strategy.”

This translates into a broad mandate covering acquisition, development, and structuring, as well as the ability to operate across different points of the capital stack.

It also benefits from an onshore/offshore structure and a focus on situations where capital is scarce and structuring is key.

“This allows us to capture opportunities where other, more rigid funds and operators cannot participate,” according to KBIS Capital. “Our hybrid approach seeks to combine the best of both worlds,” by integrating credit-style downside protection with exposure to equity upside potential.

In practice, this translates into structures such as preferred equity, structured equity, and joint ventures with downside protection mechanisms.

KBIS argues that this approach is more resilient because it does not rely on a single return driver, allows for adaptation across different market scenarios, and better aligns risk and reward in uncertain environments.

It also offers “meaningful downside protection through selective diversification.”

A Rotation Just Beginning

In conclusion, private credit is no longer the obvious trade. In its place, real estate is beginning to regain prominence, driven by market dislocation, price adjustments, and sustained structural demand.

The greatest opportunity lies in the current dislocation window holding while institutional capital has not yet fully rotated into real estate.

This would allow investors to continue capturing particularly attractive entry points before competition increases and valuations adjust again.

In any case, the primary risk is not in the macro thesis, but in execution.

The firm warns that poor asset selection, poorly designed structures, or bad timing can significantly erode returns, even in a favorable environment.

For this reason, the differentiator will not simply be having exposure to real estate, but how investments are made within it. The ability to be selective, structure deals effectively, and execute with discipline will determine who captures value at this stage of the cycle.

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