After years of delaying painful decisions, commercial real estate lenders—including Goldman Sachs Group Inc., Deutsche Bank AG, and smaller firms—are finally selling off distressed debt and foreclosing on troubled properties, even at steep losses. The shift marks the end of the “extend-and-pretend” era, where lenders held onto struggling assets in hopes of market recovery. Now, with nearly $132 billion in distressed commercial-property debt on their books, they are aggressively offloading loans, sometimes at discounts as high as 85% of their face value.
The move is both a necessity and a reckoning. Lenders say they must clear space for new investments while acknowledging that some assets—particularly offices battered by remote work trends—are unlikely to recover. “If a property has been struggling now for three to four-plus years, the odds of it coming back are very slim,” said Lonnie Hendry, chief product officer at Trepp, a commercial real estate data provider.
Signs of a Turning Point
The wave of distressed sales is accelerating. This year, Shanghai Commercial Bank sold a Manhattan condo conversion loan at an 85% discount. Goldman Sachs seized control of the Radford Studio Center in Los Angeles, which Netflix Inc. Is now negotiating to buy for a fraction of its $1.85 billion 2021 sale price. Meanwhile, Ready Capital Corp. Aims to dump 60% of its legacy loan book, including a pool of Sunbelt apartment loans sold at a 30% discount.
Foreclosures are also rising. In March, Deutsche Bank filed to foreclose on Hackman Capital Partners’ Kaufman Astoria Studios in New York, a $340 million mortgage. Parkview Financial recently foreclosed on two Baltimore apartment towers after a $45 million loan defaulted. The balance of loans in foreclosure reached $17 billion in March—the highest level since the post-Great Financial Crisis period—according to Trepp.
The first quarter saw workouts of troubled loans exceed new additions to the distressed pile for the first time since 2022, signaling a possible shift from accumulation to resolution. Yet, with nearly $132 billion in distressed debt remaining, the market’s challenges are far from over.
Why This Matters
The end of “extend-and-pretend” could reshape the commercial real estate landscape. Lenders are freeing up capital to invest in resilient sectors like multifamily, industrial, and retail—areas where demand remains strong. JPMorgan Chase & Co. Noted in its 2026 outlook that these sectors are “opportunities on the rise,” while office usage and rents are improving in select markets.
However, the transition is painful. Money managers who invested in a $240 million San Francisco office building bond saw returns slashed to $101 million after a loan sale. Borrowers facing foreclosure or forced sales may struggle to rebound, especially in secondary markets where demand is weak.
This moment mirrors the post-2008 financial crisis, when lenders finally confronted toxic assets. The difference today? The distress is concentrated in specific sectors—offices and entertainment properties—rather than a systemic collapse. The key question is whether the market can absorb the deluge of distressed assets without triggering broader instability. For now, lenders are betting on selective resolution, but the road ahead will test their resolve—and the resilience of the sector.
What Could Happen Next
Lenders may continue to prioritize foreclosure over loan extensions, particularly for assets with little prospect of recovery. Some borrowers could seek alternative financing or restructure debt, though success will depend on market conditions. Meanwhile, investors may target distressed assets at deep discounts, as Netflix did with the Radford Studio Center.
The broader economy could see indirect effects. If lending activity stabilizes—bank lending for income-producing properties grew 3.6% in the fourth quarter—it could signal confidence in certain sectors. But if distress spreads to multifamily or retail, the ripple effects could widen.
Frequently Asked Questions
[Question 1]
Why are lenders selling loans at such steep discounts?
Lenders are prioritizing balance-sheet cleanup over holding onto assets with diminishing value. The discounts reflect the market’s assessment of these properties’ true worth, especially in sectors like offices where demand remains depressed.
[Question 2]
Will this lead to more foreclosures?
Yes. The balance of loans in foreclosure reached $17 billion in March, the highest since the post-Great Financial Crisis period. Lenders like Deutsche Bank and Parkview Financial are already accelerating foreclosure proceedings on high-profile properties.
[Question 3]
Are there any sectors that are holding up better?
Multifamily, industrial, and retail remain resilient, according to JPMorgan Chase’s 2026 outlook. Office usage and rents are improving in select markets, but older or poorly located properties continue to struggle.
As lenders and investors navigate this shift, what do you think will be the biggest challenge for struggling property owners in the months ahead?
