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Nirit Cohen – WorkFutures
Angela Howard – Culture Expert
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Jonathan Price – CRE & Flex Expert
Banks are stepping back into commercial real estate lending after a long period of caution, reviving activity that had been frozen by valuation resets and a sluggish deal pipeline. Loan origination is now approaching prepandemic levels as transaction volumes recover and pricing begins to settle, according to BisNow.
Through the first nine months of the year, banks issued roughly $227B in new CRE debt — an 85% increase from last year and broadly aligned with 2019 levels, according to Newmark.
This renewed momentum follows a sector-wide rebound. U.S. CRE sales reached $42B in September, outpacing expectations set at the start of the year.
Distress Remains Embedded In the System
Even with the pickup in new lending, the industry continues to work through a large backlog of aging loans.
Delinquencies remain elevated, with 1.56% of bank-held CRE loans at least 30 days past due — a rate not seen since 2014. The largest banks show even more strain, with delinquencies at 1.86%, Federal Reserve data indicates.
Nonperforming loan volumes are climbing as well, particularly at institutions with portfolios above $50B. Charge-offs eased slightly in the first half of the year but remain higher than historical norms.
Analysts say this stability is being maintained largely through lender behavior — namely, a continued reliance on loan modifications and extensions — rather than through significant improvement in underlying property fundamentals.
Extensions Push Maturities Into a Multi-Year Wave
“Extend-and-pretend” strategies remain common, especially for borrowers still making payments but unable to refinance at current rates. The approach has pushed 2025 maturities to $957B, with banks holding almost $452B of the total, Newmark reports.
Rather than a single maturity cliff, the market now faces a prolonged wave of more than $350B maturing each year through 2030.
Banks carry the heaviest exposure in the near term, including 46% of the $663B in commercial mortgages scheduled to mature in 2026.
New Lending Tilts Toward Multifamily, And Slowly Back Toward Office
While banks are cautiously adding new loans to their books, they are also using the opportunity to recycle capital away from troubled legacy debt. Trepp’s anonymized bank dataset recorded more than $6B in new commercial mortgage originations in the second quarter, the highest quarterly figure since 2022.
Roughly half of this lending went to multifamily properties. Notably, debt is also returning — slowly — to the office sector, signaling that lenders have greater clarity on valuations after years of uncertainty.
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Macro Risks Could Accelerate a Reckoning
The balance between stability and stress remains delicate. Forecasts for the broader economy are split, with recession odds varying widely across major institutions: 48% from Moody’s, 93% from UBS, 40% from J.P. Morgan, and 35% from Goldman Sachs.
Many economists see rising risk of stagflation as inflation proves difficult to contain and growth slows.
A downturn — or even a shift in monetary policy — could quickly force banks to recognize losses they have been delaying. Although the Federal Reserve has cut rates by 150 basis points since September 2024, inflation remains above target, and policymakers remain divided.
Any reversal toward higher rates would raise borrowing costs and make refinancing even more challenging for loans that originated during the era of ultralow interest rates.
A Slow Unwind, Unless Something Breaks
For now, banks are working through legacy CRE exposure gradually while cautiously expanding new lending. The sector has not seen a rapid liquidation of problem loans, largely because economic conditions have not yet forced banks’ hands. But with elevated delinquencies, heavy maturity volumes, and macro uncertainty, the path forward depends on whether the current equilibrium holds.
If stability continues, the cleanup may proceed at a controlled pace. If economic conditions deteriorate, the slow thaw in distressed debt could give way to a sharper unwinding, bringing long-delayed losses into focus and reshaping CRE lending yet again.
