Every credit strategy will see defaults over a full cycle. Careful underwriting can make them less frequent, but it can’t eliminate them. So, one of the most useful questions an allocator can ask about any loan is what stands behind it if the borrower stops paying.
In corporate lending, the answer is the value of a business, and after a default much of what remains may be goodwill. In real estate lending, the answer is a building, which is still there after a default and can still produce income. Historical recovery data reflects the difference. Cliffwater data implies recovery of roughly 49% on non-accruing U.S. middle market direct loans, based on valuations as of June 30, 2026, while KBRA data on conduit commercial mortgages from 1995 through Q1 2025 implies recovery of roughly 71%.
Timing matters too. As of the second quarter of 2026, the NCREIF Property Index sat 18.64% below its 2022 peak, so loans originated today are sized against values that have already reset. A loan written at 70% of a property’s current value is a much smaller loan than the same 70% would have been at the peak. At the same time, many banks have stepped back from direct bridge lending just as a large volume of commercial mortgages comes due. Borrowers refinancing into higher rates and lower values often need transitional capital to get there.
In our new white paper, Collateral Matters, we explore why senior commercial real estate bridge lending may warrant consideration as a complement to corporate private credit, and why recovery depends on the lender as well as the collateral. We believe a lender that can manage a loan through a workout is better placed to realize the value of the property behind it.