Extend and Pretend
For the last two years, the commercial real estate industry has had a go-to play for dealing with maturing debt: extend and pretend. Modify the loan. Push the maturity out. Hope that rates come down, values stabilize, and the math starts working again.
And honestly? It bought time. It kept properties out of foreclosure. It gave borrowers breathing room and gave lenders a reason not to take losses. On paper, it looked like a reasonable strategy.
But here's the thing about buying time. Eventually, you run out of it.
How we got here
A massive wave of commercial real estate loans were originated during the low-rate era of the mid-2010s and early 2020s. Borrowers locked in financing at 3% to 4%, often on five- to ten-year terms, with the expectation that when the loan matured, refinancing would be straightforward.
Then rates doubled. Property values softened. Underwriting got tighter. And suddenly, refinancing wasn't straightforward at all.
Rather than forcing defaults, many lenders chose to extend maturities, sometimes by 12 months, sometimes by 24. The thinking was simple: give the market time to recover, and these loans will sort themselves out.
The Federal Reserve Bank of New York put a name to this in their research: "extend-and-pretend", and found that weaker banks were particularly prone to it, often underestimating the probability of default on the loans they were extending. The practice led to a measurable drop in new CRE mortgage originations, somewhere in the range of 5%, because capital that could have gone to new deals was tied up propping up old ones.
The problem with kicking the can
All those extensions didn't make the debt disappear. They just moved it. And most of it landed squarely in 2026.
According to the Mortgage Bankers Association, approximately $875 billion in commercial and multifamily mortgage debt is expected to mature this year, about 17% of the roughly $5 trillion in outstanding CRE loans. Some estimates put it even higher. MSCI data suggests over $930 billion is set to come due.
The value of modified CRE loans rose 66% year-over-year through mid-2025, according to the St. Louis Fed. That's not a small uptick; that's an industry-wide pattern of lenders reworking troubled debt at scale. And the loans that were extended a year or two ago? Many of them are now in line to mature again, this time with even less room to maneuver.
The average interest rate on CRE loans issued recently has been around 6.24%, compared to about 4.76% on the older debt coming due. That gap is the whole story. Borrowers who could service their debt at the old rate are now staring at significantly higher costs — and in many cases, lower property values to borrow against.
Where it gets real
Extend and pretend works as long as two things are true: lenders are willing to keep extending, and borrowers have enough runway to wait it out.
Both of those are getting harder to count on.
Lenders are showing signs of fatigue. Banks that were happy to grant 12-month extensions in 2024 are less enthusiastic about doing it again in 2026. Some are quietly offloading parts of their CRE portfolios to private credit firms rather than continuing to restructure. Others are tightening terms on the extensions they do grant, requiring principal paydowns, additional equity, or tighter covenants.
On the borrower side, the owners who had cash reserves or could inject equity already did that. The ones who are still treading water are increasingly running on fumes. Properties with weak occupancy, below-market rents, or deferred maintenance are the most exposed and those are exactly the assets that were most likely to get extended in the first place.
Foreclosure activity has already started to tick up. In the first half of 2025, lenders recorded nearly 150 CRE foreclosures, the highest midyear total since 2014. And a large share of the loans behind those foreclosures were originated in 2021 and 2022, right at the peak of the low-rate frenzy.
What this actually means
This isn't 2008. The distress isn't systemic in the same way. It's slower, more targeted, and more unevenly distributed across markets and asset types.
But it is real. And the gap between owners who are prepared and owners who are pretending is about to become very visible.
For well-capitalized buyers, this environment creates opportunities that haven't existed in years. Properties are starting to trade at adjusted prices. Motivated sellers are becoming more flexible. The bid-ask spread that froze transaction volume for the last two years is finally starting to narrow.
For owners holding debt that's about to mature, the window to act proactively, whether that means recapitalizing, selling, or renegotiating, is now. Not next quarter. Now. The borrowers who come to the table with a plan will have options. The ones who wait for their lender to force the conversation will have fewer.
The bottom line
Extend and pretend was never a solution. It was a pause button. And the pause is ending.
The question for everyone in CRE right now isn't whether this correction is coming, it's whether you're positioned to navigate it or just hoping it passes you by.
At VisionRE, this is exactly the kind of environment where real due diligence matters most. Not the version that confirms what you want to hear. The version that tells you what's actually going on. So you can make the right call before someone else makes it for you.
Sources
Mortgage Bankers Association, Federal Reserve Bank of New York, St. Louis Fed, MSCI, Reed Smith LLP, CRE Daily
