The recent bankruptcy of First Brands, a major auto-parts maker, offers more than a cautionary tale for manufacturers—it provides a revealing glimpse into how private credit market risks can ripple through commercial real estate finance. For property owners and investors, the unfolding events carry immediate relevance, particularly as private credit vehicles are increasingly underpinning real estate projects.
First Brands collapsed in September alongside subprime auto lender Tricolor, in what JPMorgan CEO Jamie Dimon described as a disturbance in Wall Street's vast credit infrastructure. The dual failures have already prompted some debt investors to reduce their exposures in certain sectors, amid growing concerns about weaknesses in consumer and auto lending.
"When you see one cockroach, there are probably more, and so everyone should be forewarned of this one," Dimon said in a post-earnings analyst call on Tuesday.
"First Brands I'd put in the same category and there are a couple of other ones out there that I've seen that I put in similar categories. We always look at these things and we're not omnipotent—we make mistakes too."
Before its collapse, First Brands amassed billions in junk-rated and off–balance sheet debt with financing from Jefferies, UBS and BlackRock. The bankruptcy exposed questionable accounting and left over $2.3 billion in assets unaccounted for. Dimon drew broader lessons from these defaults, noting,
"We've had a credit market bull market now for the better part of since 2010... These are early signs there might be some excess out there because of it. If we ever have a downturn, you're going to see quite a few more credit issues".
Unlike traditional banks, private credit lenders have grown rapidly by promising fast, flexible and sophisticated solutions for complex deals—including commercial property transactions. Their share of financing has ballooned over the last decade, fueled by institutional capital and policy moves such as recent 401(k) access to private equity funds. The First Brands bankruptcy, and now Tricolor’s, show how opaque off–balance sheet structures can mask risk until distress forces exposure.
JPMorgan itself wrote off $170 million in the third quarter related to the Tricolor bankruptcy and has since initiated a review of its controls. Dimon described the bank's exposure as "not our finest moment," but added, "when something like that happens, you can assume that we scour every issue, every universe, everything about how it could be taking place to make sure it doesn't take place from here. You can never completely avoid these things, but the discipline is to look at it in cold light and go through every single little thing, which you can imagine we’ve already done".
Lenders participating in First Brands’ growth are now counting losses, but the cases offer caution beyond the immediate debt impairment. Both bankruptcies highlight how aggressively leveraged growth and off–balance sheet financing—even when managed by sophisticated nonbanks—can create vulnerabilities for stakeholders across industries. For those in commercial real estate, the warning is clear: The same private credit market driving record transaction volumes for properties may also be the source of hidden risks and exposures, especially if economic conditions weaken or scrutiny fades.
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