Watch: The rising prominence of private debt in real estate
CEO of Arzan Investment Management, Oliver Hogg, comments on how the asset class provides developers with alternative funding solutions and greater flexibility in capital structuring
Private debt has rapidly grown into a significant asset class, gaining increased momentum after the 2008 financial crisis.
In response to stricter banking regulations, private credit has emerged as an alternative financing solution, filling gaps left by traditional lenders.
While well established in markets such as the US and Europe, private credit in the UAE is still evolving and is being shaped by regulatory developments as well as increasing market demand.
“Private credit has been the fastest-growing asset class globally, primarily because of the regulatory shifts that made traditional bank lending more restrictive,” says Oliver Hogg, CEO of Arzan Investment Management, a provider of alternative investment solutions.
The growth of Dubai’s real estate market has been accompanied by a gradual evolution in its financial frameworks.
The Real Estate Regulatory Agency (Rera) was introduced in 2007-08, but private credit lacked a defined legal structure until recently.
Over the past few years, jurisdictions such as the Abu Dhabi Global Market and Dubai International Financial Centre have implemented key frameworks, giving private lenders the clarity and confidence to operate.
This shift has allowed them to collaborate with banks rather than compete, attracting more international lenders and expanding financing options for developers.
Bridging the gap in traditional lending
Private credit is not here to replace banks – it complements them.
By offering higher loan-to-value (LTV) ratios, mezzanine loans and preferred equity structures, private lenders can step in when banks pull back, particularly during downturns.
“Private credit should always work alongside banks or step in where local lenders are unable or unwilling to provide financing,” says Hogg.
When the market is strong, private credit shifts towards growth financing by helping developers buy land, release equity from completed projects or scale operations. However, with increased flexibility comes greater responsibility. Private lenders conduct deeper due diligence than banks, given their reliance on asset-backed security rather than corporate guarantees.
Unlike banks, which must adhere to Basel III regulations that limit their lending capacity and risk exposure, private lenders have more flexibility in structuring deals.
This allows them to offer higher LTV ratios giving developers access to more capital. Importantly, this flexibility does not equate to lenient underwriting. In fact, private credit providers often enforce stricter security requirements to safeguard their investments, ensuring that risk is properly managed while offering alternative financing solutions.
Adapting to the market cycle
Private lenders source funds from investors, not depositors, making them less dependent on central bank rates.
While interest rate movements matter, they are just one factor in lending decisions. More critical are borrower creditworthiness, market conditions and asset security.
“As lenders, we do not just look at interest rates. We assess the entire landscape, including market conditions, security package quality, borrower experience and track record. These are all key factors in our decision-making process,” Hogg explains.
For borrowers, private credit becomes an option when banks cannot meet their needs – whether for higher LTVs, mezzanine financing or structured equity solutions. In such cases, the cost of capital is secondary to the ability to secure funding on flexible terms.
Citing an example of how private credit is shaping real estate financing, Hogg describes a mixed-use project on Palm Jumeirah that had stalled.
Launched before the 2008 financial crisis, the development faced delays due to unsold real estate and funding constraints. Banks were unwilling to underwrite sales-based financing, leaving the project in limbo.
“Private credit thrives in complex situations where traditional lenders are unwilling to take the risk. The Palm Jumeirah project is a clear example of how alternative financing can drive completion and value creation,” Hogg explains.
By stepping in, private lenders provided the capital needed to finish the project. Upon completion, real estate sales exceeded expectations, benefitting both the developer and the lender.
Future of private debt
The UAE’s private debt market is maturing, and institutional partnerships will play a bigger role moving forward.
“As the industry matures globally, Mashreq is a strong example of a bank that has actively supported private credit providers. They have partnered with major private equity firms in the US and the UK, playing a key role in providing capital to the sector,” Hogg explains.
“Local banks have yet to adopt this model in a meaningful way. If they recognise the benefits of private credit and how it can complement traditional lending, both borrowers and lenders could gain access to more flexible capital solutions,” he adds.
Across global markets, private credit has evolved into a one-stop shop, securing leverage from banks to provide large-scale financing at competitive terms. As regulatory clarity improves in the UAE, this model is expected to gain traction.
For those considering private credit, a strategic approach is key. Unlike bank loans, private financing requires a stronger security package and more extensive due diligence.
“The biggest mistake a developer can make is assuming private credit is a last resort. It should be viewed as a strategic tool for structuring capital effectively,” advises Hogg.
Transparency and preparation are essential. Borrowers should come with a clear financing request, a strong business case and an understanding that private credit is not a shortcut but a specialised financial solution.
