Extend-And-Pretend Created A New Wave Of Loan Maturities
As rising interest rates have caused many commercial real estate (CRE) loans to approach default, borrowers and banks have been employing an “extend-and-pretend” strategy, where loan terms are renegotiated to avoid default and extend the timeline for repayment. However, a new research brief from Gray Capital, primarily focused on multifamily properties, suggests that this approach is coming to an end. Lenders and equity investors are growing frustrated with borrowers who have not yet secured additional capital or alternative financing to pay off their loans. They are eager to resolve the situation, as holding onto these increasingly risky assets is becoming unsustainable.
The strategy of “extend and pretend” has faced criticism. A report from the Federal Reserve Bank of New York noted that simply postponing financial issues in hopes of favorable rate changes is not a viable long-term solution. Instead, this approach has been increasing pressure on banks. In response, large banks have begun quietly offloading parts of their commercial real estate portfolios to avoid losses, particularly from office property owners who are unable to meet their mortgage obligations.
Gray Capital’s analysis, which incorporates data from the New York Fed and CoStar, predicts that a wave of loan maturities could peak in 2026 for CRE overall, with multifamily loans experiencing a surge in the third quarter of 2025. Gray also forecasts that the Federal Reserve will raise rates more gradually in the future, continuing to apply pressure on borrowers, particularly those with bridge or construction loans that have already been extended.
On a more positive note, Gray’s report sees signs of improvement in the multifamily market. Multifamily unit prices have increased, rising to about $200,000, up from a low of $175,000 in mid-2023. While cap rates have risen from 4.25% in early 2022 to 5.5% in 2024, they are expected to decrease in the coming years. CoStar’s projections suggest that loan maturities in the third quarter of 2025 will be 25% higher than their initial 2023 forecast. Additionally, multifamily construction is slowing, with fewer units being delivered and a sharp decline in new starts. This trend is leading to a more balanced supply and creating more opportunities for distressed investments.
Source: GlobeSt.
