Regional banks make up about 70% of the commercial real estate loans made out by US banks. But the turmoil sparked by the US regional bank crisis combined with rising loan defaults on troubled properties has burned small banks, prompting them to scale back on commercial real estate lending as they reduce risk and shrink balance sheets. 

"Regional banks have more of a commercial real estate bend, and for a myriad of reasons, including duration risk, economic uncertainty, reduced syndication liquidity, etc., are pulling back on lending," said Manish Shah, senior managing director at Palladius Capital Management. 

The other major source of liquidity for property owners, namely the bond market — where commercial real estate mortgages are packaged and sold as securities — has dried up too. Issuance of commercial mortgage bonds is down about 82% year-over-year, according to data compiled by Bloomberg. 

That leaves room for a rising class of shadow lenders to step in and fill the void. They're mostly private credit funds using their own capital to dish out loans, usually charging more than banks for their financings.