🚨A mid-2025 rule now allows U.S. banks to stop reporting restructured CRE loans after 12 months of “stabilized” performance, sharply reducing transparency into loan distress. While this eases optics and prevents double-counting under CECL accounting, it also obscures the scale of the ongoing CRE debt crunch. Reported modified loans totaled $27.7 billion in Q2 2025 [Source: FRB St. Louis], yet total reworked debt across lenders is closer to $55 billion [Source: Reuters]. As these balances age out of disclosure starting Q4 2025, headline credit metrics may appear stronger even as real risk persists across office and hotel assets.
Modified CRE loans (banks): $27.7 B (Q2 2025, +66% YoY) — [Source: FRB St. Louis].
Estimated total modified CRE debt (all lenders): ≈ $55 B (12 mo ending Q2 2025) — [Source: Reuters].
Rule duration for disclosure: 12 months (post-modification, effective Q4 2025) — [Source: CLA Connect].
Loan Performance. Shorter disclosure windows may hide re-defaults; DSCR stress likely to resurface as modified loans reach 2026–27 maturities.
Demand Dynamics. Office and hotel sectors dominate restructurings; NOI recovery timelines exceed the 12-month look-back, prolonging risk.
Asset Strategies. Sponsors should pre-emptively deleverage or inject equity to stabilize assets during modification “probation” periods.
Capital Markets. Reported credit improvement will compress spreads temporarily, but CMBS delinquency and reserve trends will reveal true stress.
Transparency sacrificed for stability.
Office / hospitality loans remain highest risk.
Underwrite with higher LGDs (30–40%) and demand yield premium (200 bps+).
Apparent NPL declines may misprice credit.
🛠 Operator’s Lens
Refi. Use regulatory cover to negotiate extensions early; treat 12 months as a prove-out.
Value-Add. Capex only alongside signed leases; maintain strong lender reporting.
Development. Model refinancing at ≥6.5% cost of debt; stress exit cap +50 bps.
Lender POV. Banks tighten underwriting but show cleaner books; CMBS desks demand more disclosure on modified collateral.
Expect reported “troubled-loan” totals to decline through 2026 as 2025 mods age out. True risk may reappear in 2027 when extensions expire. Watch reserve builds, CMBS delinquency, and FDIC guidance for hidden stress indicators.
GlobeSt — Looser Loan Disclosure Rules Mask Growing CRE Debt Crunch (Oct 9 2025). https://www.globest.com FT — US Banks Loosen Loan Reporting to Ease CRE Pressure (Oct 2025). https://www.ft.com CLA Connect — Bank Regulatory Update: Modified Loan Reporting Rule (July 2025). https://www.claconnect.com Federal Reserve Bank of St. Louis — CRE Loan Modifications (Q2 2025) https://fred.stlouisfed.org Reuters — Banks Quietly Rework $55 B in CRE Debt (Sept 2025). https://www.reuters.com
