After years of delaying the reckoning, commercial real estate lenders are increasingly cutting their losses and offloading troubled property loans at steep discounts, signaling a major shift in the market’s long-running “extend and pretend” era, Bloomberg writes.
Some lenders are writing down loans by as much as 85% as they move to foreclose or sell distressed debt tied to struggling offices, apartments and stalled developments.
The painful reset is helping clear a backlog of roughly $132 billion in distressed commercial real estate debt, while freeing up capital for new lending opportunities. Distressed office property sales jumped 45% in the first quarter, and foreclosures tied to commercial mortgage-backed securities are climbing sharply.
Still, some analysts see the cleanup as a necessary step toward recovery, with commercial mortgage issuance expected to rebound this year as healthier sectors like multifamily, retail and industrial remain resilient.
For lenders, the message is increasingly clear: Taking the hit now may be better than waiting for a comeback that never arrives.
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