CRE Lending Crisis Builds As Refinancing And Risk Pile Up

A Multi-Layered Crisis For CRE Lending

The challenges facing commercial real estate (CRE) lenders have grown so numerous and severe that the usual “perfect storm” metaphor falls short. With mounting pressures across financial, regulatory, and systemic fronts, the sector is navigating one of its most volatile periods in recent memory, reports GlobeSt.

Debt Distress Hits Decade High

According to MSCI Real Capital Analytics, CRE distress rose to $116B in Q1 2025—up 23% year-over-year and marking the highest level in a decade. Loan delinquencies are rising, albeit at a slower pace, as higher interest rates and tighter credit conditions make refinancing increasingly difficult.

The Maturity Wall Is Here

A key driver of risk is the so-called “maturity wall,” with a growing wave of CRE loans coming due. In response, lenders have leaned heavily on “extend-and-pretend” strategies—postponing recognition of losses rather than addressing underlying risks—allowing the debt pile to grow further, per the Mortgage Bankers Association.

Bank Portfolios Show Strain

The Federal Deposit Insurance Corp. (FDIC) reports that past-due and nonaccrual CRE loan rates are now at their highest since 2014. Some banks have even ceased recognizing interest on loans they don’t expect to collect—a sign of deteriorating loan quality.

External And Policy Risks Mount

Uncertainty around Federal Reserve policy and broader market volatility is clouding the economic outlook. The May Beige Book noted a slight slowdown in activity, driven by “elevated levels of economic and policy uncertainty.” Inflationary pressures, including those linked to tariffs, are also contributing to market instability.

A new risk has emerged in the form of a proposed “revenge tax” provision—Section 899—which could dampen foreign investment in US CRE. Designed to counter perceived unfair foreign levies, the tax could unintentionally disincentivize overseas capital, a key funding source for CRE deals.

Hidden Systemic Risks

Beyond visible challenges, systemic vulnerabilities are emerging from indirect exposures. Private credit and nonbank lenders—such as REITs and property funds—pose interconnected risks to traditional banks. Research from NYU Stern and others suggests even large US banks are significantly exposed via lending relationships with these nonbank players.

Unrecognized Losses Echo Past Bank Failures

Adding to the risk mix, banks are carrying unrealized losses in their securities portfolios—an issue that played a major role in several bank collapses in 2023. Should market stress continue, there are growing fears that CRE lending could ignite a similar chain reaction.

Why It Matters

The convergence of financial stress, regulatory threats, and hidden systemic risks is forcing CRE lenders into uncharted territory. With refinancing challenges mounting and economic outlooks dimming, industry players are being tested on multiple fronts—and there may be no quick exit from this storm.

What’s Next

CRE lenders will need to navigate maturing debt, potential foreign capital flight, and intensifying scrutiny from regulators and investors. As policymakers assess systemic vulnerabilities, further actions could reshape how the sector operates. The ability to adapt—rather than delay—may be key to weathering what lies ahead.