CRE Lending Rebounds as Banks Navigate Distress Risks

Cautious Optimism Returns to CRE Lending

According to Bisnow, banks are reentering the commercial real estate market after a multi-year pullback. Loan origination volumes hit $227B in the first nine months of 2025. That marks an 85% jump over last year and is nearly back to 2019 levels, according to Newmark.

Multifamily assets led the surge. These properties received about half of the loans originated in Q2. Even the office sector—largely avoided in recent years—is seeing renewed lending activity.

“Deploying capital into office tells me they feel good about where values are today,” said Joe Biasi, head of capital markets research at Newmark.

Distress Still Simmers Below the Surface

Despite growing lending activity, debt distress hasn’t gone away. CRE loan delinquencies at banks remain close to their highest level since 2014. About 1.56% of loans are at least 30 days late. Among the 100 largest banks, that rate jumps to 1.86%.

Many lenders are still modifying and extending troubled loans. This approach, often called “extend-and-pretend,” helps avoid losses in the short term. As a result, nearly $1T in CRE debt is scheduled to mature in 2025. Banks hold about $452B of that.

“No one wants to take the losses now,” said Ian McCready of Trepp. “Everyone’s waiting to see what happens.”

The Risk of a Forced Unwind

For now, distressed assets are being managed slowly. But if economic conditions worsen, banks may be forced to unwind positions quickly.

A recession or a change in Fed policy could drive nonperforming loans higher. That would leave banks with fewer options to avoid write-downs.

Charge-offs—when banks formally record a loss—have dipped slightly. But nonperforming loan totals continue to rise, even as some banks begin to offload older, troubled debt more aggressively. The trend is especially strong at banks with more than $50B in real estate exposure.

Macroeconomic Wildcards

Economic uncertainty is adding pressure. Inflation remains elevated. Growth is slowing. Fears of stagflation are replacing earlier hopes for a soft landing.

Recession odds vary. Moody’s puts the chance at 48%, while UBS says 93%. Goldman Sachs and J.P. Morgan estimate 35% and 40%, respectively.

The Fed cut rates by 150 basis points between September 2024 and mid-2025. That helped lower borrowing costs and enabled some refinancings. Still, officials are divided on the next steps.

If inflation persists, rate hikes could return. That would raise debt costs again and deepen distress for many CRE borrowers.

“What hasn’t really happened is a rapid, mass unwinding of these positions,” Biasi said. “Until someone’s hand is really forced, this is kind of how it’s going to go.”

What’s Next

Banks are likely to remain active in CRE lending while treading carefully. They’re balancing new opportunities with lingering risks.

But the pressure is mounting. About $663B in CRE loans mature in 2026. Banks hold 46% of that.

Whether it’s a recession, inflation, or a market shock, the next major disruption could force banks to move from managing risk to recognizing it.