Commercial Real Estate (CRE) Market in 2025: Navigating Underwater Loans and Distress

[Karen Schimpf]

The commercial real estate (CRE) market in 2025 continues to grapple with significant challenges, with underwater loans and distressed assets dominating the landscape, according to MSCI's latest analysis.

A Glimpse into Loan Risks

Of the $500 billion in CRE loans set to mature this year, 14% are underwater—where the outstanding debt exceeds the asset's current value. Multifamily housing and office properties are especially vulnerable to these financial pressures.

• Multifamily Housing: Nearly $19 billion in multifamily loans maturing in 2025 (10% of the total) are underwater. This trend is primarily attributed to acquisitions at record-high valuations between 2020 and 2022.
• Office Properties: The office sector faces even starker challenges, with 30% of maturing loans—totaling $30 billion—now surpassing the current property values.

Sector-Specific Struggles

Certain asset classes are feeling the pressure due to structural or market-specific issues:

• Industrial: Properties built before 2010 are increasingly seen as obsolete, leading to higher vacancies and reduced functionality.
• Retail: Larger malls continue to underperform, with 80% of underwater retail loans linked to these struggling assets.
• Multifamily: Although structurally sound, some properties have left investors exposed due to inflated valuations from the recent real estate boom.

Pockets of Opportunity

Despite the headwinds, there are signs of improvement in specific areas of the market:

• Office Demand: Central business district (CBD) offices saw increased sales activity in Q4 2024 as price corrections attracted investors.

• Market Resilience: Overall distress levels across the CRE market declined in the last quarter, although delinquent and foreclosed loans remain a persistent concern.

If you're considering financing options to refinance or purchase underperforming CRE assets, our bridge loan products can provide the solutions you need. Call us at 512-358-1511 to discuss your project.

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Karen Schimpf

(512) 358-1511

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www.ApplyCommercialLoans.com 

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Give me a call today at 512-358-1511 or get started online here: https://applycommercialloans.com/apply-now/.