For the past four years, much of the commercial real estate industry has been playing a familiar game: kick the can down the road and hope conditions improve. Lenders extended maturing loans. Borrowers renegotiated terms. Both parties crossed their fingers that interest rates would fall fast enough to make the math work. That game is now coming to an end — and the consequences are rippling across property markets nationwide.
How We Got Here: A Brief History
The seeds of today's crisis were planted between 2020 and 2022, when a combination of pandemic-era stimulus, near-zero interest rates, and surging demand for certain property types drove commercial real estate values to historic highs. Investors and developers borrowed aggressively, many taking on floating-rate or short-term debt with the expectation that refinancing would be straightforward.
Then came 2022. The Federal Reserve launched its most aggressive rate-hiking cycle in four decades, raising the federal funds rate from near zero to over 5% in just eighteen months. Almost overnight, the math on billions of dollars of CRE loans stopped working. Refinancing costs jumped by 300 basis points or more, leaving many borrowers unable to bridge the gap between their original loan terms and what lenders now required.
Rather than triggering an immediate wave of defaults and foreclosures, the industry largely turned to a quieter strategy: "extend and pretend." Lenders modified loan terms, pushed out maturity dates, and bought time — betting that rates would fall and property values would recover before the bill truly came due.
The numbers tell the story. Loan modifications tracked across CMBS, CRE CLO, and agency loan pools climbed from $21.1 billion in early 2024 to $39.3 billion by March 2025 — an increase of 86% in just one year. The original 2024 maturity estimate of $659 billion ballooned to $929 billion as lenders rolled extended loans into the future. By the end of 2025, an estimated $600 billion in mortgages had been extended from their original due dates — in what some analysts have called "Extend and Pretend 2.0."
One high-profile example: the Willis Tower in Chicago, backed by a $1.33 billion loan originally set to mature in 2020, received a modification in early 2025 pushing its maturity date all the way to 2028. It was not alone. Across the country, office towers, multifamily complexes, and retail centers were quietly having their clocks reset.
The Wall Arrives — And Extensions Are Running Out
The strategy worked, until now. The Mortgage Bankers Association estimates that $875 billion in commercial mortgages will mature in 2026, down slightly from the $957 billion originally scheduled for 2025 — but the difference is largely a product of yet more extensions piling up. Peak maturity volumes were forecast to hit $875 billion this year, with elevated volumes persisting through at least 2030.
Critically, the willingness of lenders to keep granting extensions is declining sharply. Extensions fell from $384 billion in 2024 to roughly $200 billion in 2025 — a drop from representing 41% of expected maturities to just 21%. As one analysis put it plainly: the era of "extend and pretend" is giving way to "resolve or reset."
Why the shift? Lenders — particularly in the office sector — are increasingly recognizing that the problems are structural, not temporary. Office CMBS delinquencies hit a record 12.34% in January 2026, the highest level since 2000. Only 11% of office CMBS loans maturing in a recent month were paid off in full. Hybrid work has permanently reduced demand for traditional office space in many markets, dragging down values and rents in cities from Portland to Chicago to Denver.
For borrowers who took on floating-rate debt during the low-rate era, the math is simply punishing. Refinancing costs remain 300 or more basis points higher than original loan terms. Property values have declined. And lenders who once patiently waited are now moving toward enforcement.
What Happens Next: Workouts, Sales, and Defaults
With extensions becoming harder to obtain, borrowers now face a narrowing set of options: refinance at significantly higher costs, bring in fresh equity capital to recapitalize, sell the asset — often at a steep discount — or risk default and foreclosure.
The distressed asset pipeline reflects this pressure. In Q3 2025, total distressed CRE volume reached $126.6 billion, up 18% year over year, with multifamily alone accounting for $22.8 billion of that total. The multifamily distress story is somewhat different from office — it is driven less by structural demand collapse and more by the collision of peak-era purchase prices, floating-rate debt, and moderating rent growth. Delinquency rates in the sector reached 7.12% by late 2025, the highest since 2015.
For lenders, the new posture is enforcement over patience. As one industry headline put it this week, "easy extensions are disappearing as office and multifamily owners face higher rates, tougher refinancing, and new workout strategies." Banks that spent 2023 and 2024 quietly modifying loans — particularly smaller regional banks, which saw a 217% spike in CRE loan modifications in 2024 — are now approaching the practical limits of how long they can continue that strategy without regulatory scrutiny and capital concerns.
A Price Discovery Moment
There is a silver lining buried in all of this, though it depends heavily on which side of the table you are sitting on.
For investors and opportunistic buyers, 2026 is shaping up to be the price discovery year the market has been waiting for. Distressed sales and forced dispositions tend to establish new market benchmarks — and with more than $125 billion in distressed assets in the pipeline, there will be no shortage of opportunities for well-capitalized buyers willing to do the work.
For lenders, the workout strategies are evolving. Banks and private credit providers are increasingly collaborating rather than competing — banks supplying note-on-note financing and A-notes while private credit fills execution gaps for transitional business plans. Private lenders now account for 34% of construction financing, up from roughly 9% in the post-GFC era.
For borrowers, the calculus is harder. Those who can demonstrate strong cash flow, creditworthy tenants, and a credible path to stabilization will find willing lenders. Those who cannot will face a reckoning that "extend and pretend" can no longer defer.
The Bottom Line
The national commercial real estate market spent four years treating a structural problem like a temporary one. Rates were supposed to fall faster. Remote work was supposed to reverse. Values were supposed to bounce back. Some of that happened — partially. But not enough, and not fast enough, for hundreds of billions of dollars in loans that are now past due or approaching maturity with no clear exit.
The patience phase is over. What comes next? Its hard to say for certain, but we see a reckoning in the market has been postponing since 2022.
For more information on investing in Snohomish County Commercial Real Estate, we'd love to help in your endeavors.
Scott Weitz
Scott@WeitzCommercial.com
T: (206) 306-4034
This blog is intended for informational purposes only and does not constitute investment or legal advice.
