The commercial real estate market is experiencing a wave of loan modifications, with total volume reaching $11.2 billion in Q3. Many CRE lenders are choosing to delay loan defaults by restructuring debt and extending maturities instead of foreclosing. This strategy, often called “extend and pretend,” reflects how lenders are managing risk amid high interest rates, tight lending conditions, and declining property valuations across major asset classes.
The hospitality and office sectors remain under the greatest financial pressure. Hotels saw roughly $5.5 billion in modified loans, while office buildings accounted for around $1.4 billion. Both segments continue to struggle with low occupancy, refinancing challenges, and reduced investor demand, while industrial and self-storage properties show stronger performance and fewer distressed loans.
Experts say this spike in CRE loan workouts and maturity extensions is a sign of broader stress in the market. More than 60% of these modified balances involve large-balance commercial loans over $50 million. While extensions provide temporary relief, underlying risks persist especially for distressed CRE assets that face ongoing cash flow and refinancing hurdles. Investors, brokers, and lenders should closely monitor loan modification trends as a key indicator of the commercial real estate debt market’s health heading into 2025.
