SINGAPORE, July 21 (Reuters) - When global commercial real estate services firm JLL found public debt and loan markets were averse to funding a property project in Arizona, it turned to private credit markets and easily got the loan.

The $585 million refinancing loan for real estate company Five Star Development was at an undisclosed spread over overnight rates, possibly more expensive than any bank loan or bond.

But Bryan Clark, managing director of JLL Capital Markets, says there were challenges in public debt markets, including lenders' reluctance to finance construction projects, the volatility in debt markets and that even lenders who were able to provide financing were "unable or unwilling" to write a loan of this size.

Private lenders, meanwhile, had "significant liquidity" to deploy for such financings, proving to be a right fit.

The deal announced in May is one in a booming private credit market where long-term lenders such as pension funds and wealth managers seeking to lock in rich yields are meeting desperate borrowers stonewalled by public markets.

Besides property developers, borrowers thronging private markets include privately-held companies and start-ups whose private equity issuance has been stymied by broader stock market swings and the deepening discounts of their valuations, known as a 'down round' in the industry.

Lenders are queuing up too, enticed by the prospect of higher returns as a result of an "illiquidity premium".

Asia, which had long trailed its Western counterparts, has also caught onto the trend. Investment firm Muzinich & Co. recently announced it had closed a $500 million Asia Pacific private debt strategy.

Private lending yields produce a return of about 10% to 18%, typically for a three-year transaction, said Andrew Tan, Muzinich's Asia Pacific CEO.

"Private credit in Asia has been ramping up," said Tan. "Asia is only at the beginning of this journey."

In comparison, the ICE BofA global high yield index has an effective yield of about 8.3%.

Others with big plans to enter the highly opaque and largely unregulated private lending market include Hong Kong-based PAG, Bain Capital, India's Kotak Mahindra Bank, and Hong Kong's ADM Capital.

ILLIQUIDITY PREMIUM

BlackRock, the world's largest asset manager, last month debuted its retail private credit fund.

Australian superannuation fund UniSuper, which runs a $15 billion private markets portfolio investing in unlisted infrastructure and private equity, is looking to grow its portfolio.

"Just given the pipeline of opportunities, we could see ourselves potentially ... (doing) another $3 to $5 billion," said Sandra Lee, UniSuper's head of private markets.

Data from Barclays shows global assets under management of business development companies -- typically closed-end investment funds that invest in small and mid-sized private companies -- hit $280 billion in the first quarter of this year, nearly double the amount from two years ago.

Some big factors behind the boom have been the rather aggressive global monetary tightening cycle and U.S. regional banking sector turmoil that led to banks turning more cautious on lending.

"Things like the recent banking concerns ... feeding into volatility and markets feeding into uncertainty, this does impact those more public debt markets and what you do find is those markets either they totally shut down, or they shut down for all but the best borrowers," said Shane Forster, head of Barings' Asia Pacific private finance group.

"It's fair to say investor demand in private debt is quite high at the moment ... and that's because they see the attractive nature of the asset class."

Benno Klingenberg-Timm, UBS Asset Management's head of APAC global sovereign markets, said sovereign wealth funds from commodity-exporting economies and non-commodity exporters, mainly in the Asia Pacific, also have a large allocation to private markets, comprising private equity, real estate, infrastructure and commodity-linked investments, among others.

"These are very long-term oriented funds that aim to harvest the illiquidity premium," he said.

"Their mission and mandate are geared towards long-term wealth generation and return maximisation, (which) makes these strategies possible."

(Reporting by Rae Wee in Singapore, additional reporting by Georgina Lee in Hong Kong Editing by Vidya Ranganathan and Kim Coghill)