With a record $2.2T in commercial real estate loans coming due by 2028, nearly $1T expected to mature this year, there had been some expectations among investors that a wave of distressed assets would hit the market.

That hasn't quite happened yet, as transaction activity remains at cyclical lows. And rather than during the Global Financial Crisis, when lenders were “packaging up anything and securitizing it,” the recovery from this market downturn will look different because of the increased variety of lenders, MSCI Real Assets Chief Economist Jim Costello said last week at the National Association of Real Estate Editors.

“People are saying, ‘Oh, it's all going to fall apart, we're going to see prices fall and all the loans go bad and the commercial banking system fall apart, just like before,’” Costello said. “But the conditions are different this time, for a number of reasons.”

Roughly $600B of commercial property loans are due to mature this year, according to data from MSCI. The largest chunk of those maturities are CMBS loans, but MSCI’s data predicts that maturities on investor-driven loans will outpace CMBS maturities in 2025.

CMBS maturities are publicly traded instruments, meaning the debt servicers handling workouts must provide transparency. With more debt in the private market, it will thus be more difficult to figure out where distress is popping up.

“There's a lot happening in the background, besides what's happening with maturities, that we can’t track,” Costello said.

Investors have long said that borrowers may be able to elude the wall of maturities predicted to hit the commercial real estate sector using “extend-and-pretend” tactics. That’s becoming increasingly true, Costello said at this week’s National Association of Real Estate Editors conference in Austin.

“People talk about it, I think, sometimes in the wrong way. They talk about it as a wall of maturities, as if it's an insurmountable thing that we're facing. And that everything hits that wall and everything falls apart,” he said. “There are other structures happening in the background to resolve these distressed situations.”

One of the ways that lenders have been skirting the impending doom accompanying maturities has been to recapitalize a fund and sell secondary shares, Costello said. While that creates some dilution within a fund’s value, it creates enough equity to make a refinancing deal work.

Another method currently being used is banks selling off portions of loans at a loss to avoid larger losses down the line, Costello said. The most recent example is Washington Federal Bank selling $2.8B in CRE loans to Bank of America last week at 92 cents on the dollar.