📢Good morning,
Starting this quarter, U.S. banks can stop reporting modified commercial real estate (CRE) loans after just 12 months — even if those loans remain under stress. The change, finalized mid-2025, means many reworked loans will vanish from “troubled debt” categories on paper. Yet modified CRE loans already total roughly $27.7 billion, up 66% year-over-year, and private estimates put the true figure closer to $55 billion
📊 Quick Dive
Transparency trade-off: The new rule favors short-term stability but obscures rising risk; analysts warn “extend-and-hide” may replace “extend-and-pretend.”
Re-default risk: Historical data show many restructured CRE loans fail again within 2–3 years — especially in office and hotel sectors.
Market impact: Reported “troubled” loan totals may fall in 2026 even as actual distress grows, masking bank exposure until losses surface.
Read the full Signal
San Francisco Office Landmark Trades at 60% Discount as Distress Spreads
A flatiron building at 800 Market St. sold for $17.2 million, a >60% value drop from its pre-pandemic level, underscoring downtown San Francisco’s deep office distress. Vacancy remains near 34%, and one-third of the city’s office stock is financially troubled. Yet investors like Fountainhead Development are cautiously re-entering, betting that smaller creative-floorplate assets can rebound from record-low pricing. Read Full Signal →
Brookfield Trims Office Team, Shifts Toward Asset-Light Model
Brookfield Properties cut senior leasing staff and is outsourcing U.S. property management to CBRE as it pivots toward a fee-driven asset-management model. The firm, managing over $1 trillion AUM, is reducing direct office exposure after defaulting on $754 million of Los Angeles office loans in 2023. Its evolution mirrors peers like Blackstone — signaling a permanent structural shift away from balance-sheet ownership toward capital-light management. Read Full Signal →
Crow Holdings Recapitalizes 194-Property, 4.5 MSF Retail Portfolio
Dallas-based Crow Holdings closed a $1.8 billion+ recapitalization of its national retail platform, comprising 194 properties and 4.5 million sf across 30 states. The portfolio is 93% leased, with NOI up 41% since 2020, reflecting the resilience of necessity-based retail. Lenders remain eager for stable strip and grocery-anchored centers even as office and hotel credit tightens. Read Full Signal →
Regulators are quietly buying time for banks, but opacity raises long-term risk. For lenders, the move demands deeper internal stress-testing — don’t take declining “troubled loan” figures at face value. For borrowers, this is a rare window to negotiate extensions under the radar; use it to right-size leverage and prove loan performance before the next maturity wave in 2026.
Operators should expect tighter scrutiny from private credit funds filling the gap — higher spreads, stricter covenants, but faster execution. The refinancing era ahead will favor transparency, liquidity, and proactive borrower-lender collaboration.
Reported CRE stress will look better on paper through 2026 — real performance won’t.
Office repricing continues: more 50–60% discount sales expected in coastal markets.
Private credit rise: non-bank lenders step in to refinance extended loans at premium yields.
Retail and industrial remain the bright spots for capital seeking stability amid refinancing turmoil.
