U.S. banks entered 2025 with a backlog of commercial real estate loans that were temporarily extended to avoid forced action during peak rate volatility. As January begins, those extensions are expiring, and lenders are moving from patience to triage. Internal reviews are focusing on debt service coverage, tenant durability, and sponsor support rather than projected recoveries. Loans that fail to meet revised underwriting thresholds are being pushed into restructuring conversations or exit pathways.

This marks a structural shift in lender behavior. Extensions were a time-buying strategy — not a solution. With regulatory pressure rising and capital tied up in non-performing assets, banks are now forced to choose between restructuring, selling paper, or enforcing remedies. This will directly affect valuations, refinancing availability, and ownership control across stressed CRE sectors.

Expect a wave of loan workouts, discounted note sales, and recapitalizations through Q1 and Q2 2026. Sponsors with liquidity and transparency will retain assets. Those relying on recovery narratives without cash support will lose leverage — financially and strategically.

Loan extensions bought time, not stability. As banks move from accommodation to enforcement, assets with weak cash flow, optimistic valuations, or undercapitalized sponsors will be forced into restructurings or ownership changes. The coming quarters won’t reward patience — they will reward liquidity, transparency, and operators who can execute under tighter capital and regulatory constraints.