CRE Is 'At A Crossroads' After Loan Modifications Spike
The days of extend-and-pretend strategies, where loan terms are pushed out to delay refinancing or payoffs, are far from over, new data from CREDiQ suggests.
Loan modifications for CMBS, collateralized loan obligations and Freddie Mac debt nearly doubled over the last year, with $18.2B in modifications for the year ending in March pushing the total to $39.3B. The pace of modifications is also once again accelerating, with $2B in modifications across 47 loans last month marking the largest monthly change since May 2024.
“The CRE sector is at a crossroads, with nearly $40 billion in modified loans signaling both caution and adaptability,” CREDiQ CEO Mike Haas wrote in an April 17 analysis.
Capital markets continue to grapple with uncertainty, which is making extend-and-pretend strategies increasingly popular, Haas said. Capital markets and the broader American economy have been rattled by President Donald Trump’s new tariff regime.
Trump’s recent public attacks on Federal Reserve Chairman Jerome Powell over his decision to keep interest rates flat has only added to that uncertainty, leading to another selloff of stocks on Monday.
The number of loan modifications in March was ahead of February but well below an uptick in modifications that happened at the end of the year. Still, there are only four months since the start of 2022 where the balance of modified loans exceeded the $2B that was seen in March.
Debt markets and the broader commercial real estate sector have struggled to adapt in real time to shifting trade policy. Tariffs most immediately impact the cost of imported materials, but investors, analysts and experts say the uncertainty being sown has added a new chill to already frozen markets.
Even before the trade war forced businesses to reexamine their growth plans, CMBS market watchers said they expected loan modifications to tick up in 2025. Then, as now, lenders were content to reach short-term deals to push out loan maturity dates on properties that are generating cash.
But cash flow issues at lower-tier properties — especially at the older office buildings that are losing tenants that are opting for smaller, nicer footprints — are still likely to push up delinquency rates throughout the year.
The continued can-kicking from the industry is building the wall of maturities higher for the coming years. A November report from Gray Capital found that multifamily CMBS debt maturities are set to peak in October 2025 at $5.4B, 25% higher than its estimate for the month a year earlier.
The Federal Reserve Bank of New York warned last year in a report that the concentration of debt maturities threatens the stability of regional banks.
“The expansion of the maturity wall represents a financial stability risk as a sizable, and increasing, portion of bank regulatory capital is at risk should these CRE loans default,” authors Matteo Crosignani and Saketh Prazad wrote.
