Extend-and-pretend and forbearance deals widely implemented to “cure” delinquent CRE mortgages.
The office and multifamily sectors of commercial real estate loans got further bludgeoned in August, despite large-scale extend-and-pretend and forbearance deals executed in the hopes for better times and lower interest rates and more demand so that lenders don’t end up with the property and a huge loss.
The delinquency rate of office mortgages that have been securitized into commercial mortgage-backed securities (CMBS) spiked to 11.7% in August, the worst ever, a full percentage point above even the peak meltdown rate of the Financial Crisis (10.7%), according to data by Trepp , which tracks and analyzes CMBS.
Back in December 2022, the office CMBS delinquency rate was still 1.6%. Since then, it has exploded by over 10 percentage points.
It’s the older office towers that get in trouble. High vacancy rates in new fancy office towers allow companies to move from an old tower to a new tower, thereby upgrading and downsizing at the same time. This “flight to quality” is increasing the pressure on older towers.
The delinquency rate for multifamily CMBS, backed by rental apartment property mortgages, jumped to 6.9%, the worst since December 2015, just before the defaulted $3-billion loan on Stuyvesant Town–Peter Cooper Village in Manhattan was “cured” through the sale of the property to Blackstone, which caused the CMBS delinquency rate to plunge.
Two years ago, the multifamily CMBS delinquency rate was still 1.8%.
Multifamily has now become the second worst category of CRE, after office CMBS, and ahead of lodging CMBS (delinquency rate of 6.5%) and the long-beaten-down retail CMBS (delinquency rate of 6.4%). The delinquency rate for industrial properties, such as warehouses and fulfillment centers for ecommerce, has risen but remains very low (0.6%).
The CMBS were sold to institutional investors, such as bond funds, insurers, etc. Banks that originated the loans are off the hook.
“Extend and pretend,” a time-honed strategy to “cure” a delinquent loan, is now being implemented for the biggest office mortgage that became “delinquent” in August: The $1.04 billion mortgage on 1211 Avenue of the Americas, a 45-story 2-million square-foot office tower in Midtown Manhattan, built in 1973. In 2015, after a renovation, the property was refinanced and the new mortgage was securitized, with a maturity balloon payment in August 2025. The 4.15% fixed-rate mortgage became nonperforming in August when the maturity balloon wasn’t paid off.
But Trepp reported that a three-year term extension has already been negotiated, where the maturity date would be pushed out to August 2028. Trepp expects the mortgage to be returned from the Special Servicer to the Master Servicer and come off the delinquency list. That’s extend and pretend in action.
Loans are considered “cured” and get pulled off the delinquency list when the interest gets paid; or when a deal is worked out to extend and modify a mortgage that wasn’t paid off at maturity date; or when a forbearance deal was worked out between borrower and lender; or when the loan is resolved through a foreclosure sale; or when the property is returned to the lender in lieu of foreclosure. So this process of “curing” a delinquent mortgage can mean pushing the problem into the future or taking big losses now.
“Cured” through forbearance in August was the $335 million mortgage on Times Square Plaza in Manhattan. The 3.84% fixed-rate mortgage, originated in October 2014, had become delinquent in October 2024 when the borrower wasn’t able to pay off the mortgage at maturity. But a forbearance agreement was executed between borrower and Special Servicer, with the forbearance period lasting through October 2026. This caused the mortgage to get pulled off the delinquency list in August.
The borrower has the option of extending the forbearance period for two additional 12-month periods. Trepp reported that as part of the deal, the borrower will inject $14 million in new equity to cover operational shortfalls; and borrower/guarantor guaranteed the payment of an additional $20 million for future leasing and capex cost required to stabilize the property.
Among the newly delinquent multifamily mortgages was the $62 million mortgage on Park West Village in Manhattan. The 4.65% fixed-rate mortgage on the 850-unit property, built in 1950 and renovated in 2014, was originated in August 2022. In August 2025, it became 30 days delinquent.
Who is on the hook for CRE mortgages?
For office mortgages: A big part is spread across investors – not banks – around the world via office CMBS – discussed above – and CLOs that are held by bond funds, insurers, private or publicly traded office REITs and mortgage REITS. PE firms, private credit firms, and other investment vehicles, are also exposed to office CRE loans.
Banks hold only a portion of office CRE loans. Many banks disclosed write-downs and losses. Many have sold bad office loans to investors at big discounts to get them off their books. And their earnings and shares were dented. And some of these banks were big foreign banks that were aggressively pursuing the US office market in prior years, such as Deutsche Bank.
For multifamily mortgages? The largest category of CRE debt, with $2.2 trillion in mortgages outstanding at the end of 2024, accounts for 45% of the $4.8 trillion in total CRE debt, according to the Mortgage Bankers Association.
Over half of multifamily debt was securitized by the US government (mostly Fannie Mae and Freddie Mac which doubled their exposure over the past 10 years) and the CMBS were sold to investors; and state and local governments hold a small portion of it.
Banks and thrifts are on the hook for 29% of multifamily debt, life insurers for 12%, and private label CMBS – discussed above – CDOs, and other Asset Backed Securities for about 3%.
The relatively limited exposure by US banks to CRE mortgages indicates that CRE is not going to pose a systemic risk for the banking sector, that most of the losses hit investors and the government, and that the Fed can let it reset on its own.
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