Fed Paper Challenges “Extend And Pretend” CRE Narrative

According to The Real Deal, a new Federal Reserve research paper is pushing back on one of commercial real estate’s most repeated post-pandemic narratives: that banks have been quietly extending troubled loans to avoid losses. The paper, published by Federal Reserve Board economist David Glancy in May 2026, argues that lenders largely handled CRE loan extensions within historical norms rather than engaging in widespread “extend and pretend” practices.

The report, titled “Pretend or Amend? On Evergreening in CRE,” examined how banks treated maturing commercial real estate loans as higher interest rates and falling property values strained refinancing markets. The findings suggest banks tightened standards instead of broadly granting lenient extensions.

A Closer Look At Loan Extensions

Glancy’s research focused on whether banks disproportionately extended weaker CRE loans or relaxed underwriting requirements after market conditions deteriorated in 2022. According to the paper, lenders did neither.

Low debt-yield loans became less likely to receive extensions after 2022, declining by roughly 7 percentage points, according to the report. Non-recourse loans were also about 5 percentage points less likely to secure extensions. Among low-yielding loans specifically, only about 20% of non-recourse loans received extensions, compared to roughly 40% for recourse-backed loans.

The findings suggest banks increasingly prioritized borrower guarantees and stronger collateral support as refinancing risks mounted. That contrasts with the industry assumption that lenders were routinely pushing out maturities to delay recognizing impairments.

The Details

The paper also found that overall extension activity remained close to historical averages. Since 2023, about 50% of maturing CRE loans received extensions. That figure slightly exceeded pre-pandemic levels. It remained below the roughly 60% extension rate seen early in the pandemic. The findings also contrast with mounting concerns over rising CRE debt maturities and refinancing pressure across regional banks.

Glancy concluded there was “no clear sign of banks increasing extensions to hide the stress.” Instead, the data points to lenders actively differentiating between stronger and weaker credits while still using extensions as a standard workout tool.

The research arrives after years of warnings that looming CRE maturities would trigger a wave of regional bank failures. Office distress, elevated interest rates, and declining valuations fueled concerns that lenders were masking losses by repeatedly extending underwater loans.

Predictions Vs. Reality

Some of the industry’s most bearish forecasts have yet to materialize. At The Real Deal’s New York City forum in May 2024, then-Cantor Fitzgerald chairman Howard Lutnick predicted that between 500 and 1,000 banks could fail as CRE losses surfaced.

“You’re going to start seeing that in ’25 and ’26,” Lutnick said at the event. “Every single weekend a regional bank is going to go bye-bye.”

So far, those collapse scenarios have not played out at scale. Since Lutnick’s remarks, only First National Bank of Lindsay in Oklahoma has failed, according to federal banking records. A Treasury Department Office of Inspector General report later tied much of that bank’s collapse to fraud committed by its former CEO rather than CRE exposure alone.

Why It Matters

The paper could change how investors, regulators, and borrowers view CRE credit stress in late 2026. For two years, “extend and pretend” fueled fears of delayed price corrections across commercial real estate.

Glancy’s findings suggest banks acted more cautiously than many critics expected. However, refinancing risks still threaten weaker properties, especially in the office sector. Even so, the research weakens claims that banks widely hid losses through routine loan extensions.

The report also supports trends seen in bank earnings and regulatory commentary during 2025 and 2026. Lenders continue managing troubled CRE loans through structured workouts and selective refinancing. Many banks also require additional recourse instead of granting broad maturity extensions.

What’s Next

CRE refinancing pressure is unlikely to disappear soon. Billions in office, multifamily, and transitional asset debt still mature over the next several years, while interest rates remain well above pre-2022 levels.

Still, Glancy’s paper may temper some of the more catastrophic forecasts surrounding regional banks and commercial real estate. Investors and regulators will now watch whether extension volumes remain stable through 2026 or begin rising as another wave of maturities approaches.