A significant volume of commercial real estate debt issued in 2021 and 2022 is coming due. The deals that borrowed at historically low rates, underwrote to aggressive rent growth projections, and counted on a quick refinance are now facing a very different world. Rates are higher. Valuations are lower. And lenders are paying much closer attention to whether borrowers can actually meet their covenants.
For investors who understand what is happening, this creates a rare opportunity. For those who do not, it is easy to overpay for the wrong asset at exactly the wrong time.
What Is Actually Happening
Extend and pretend has been a real phenomenon. When loans came due in 2023 and 2024, many lenders quietly modified terms, extended maturities, and avoided forcing sales that would have required them to recognize losses. That can only go on for so long.
The investors who bought multi-family properties in 2021 with floating rate debt and aggressive assumptions are now sitting on assets that cash flow poorly, if at all. Refinancing at today’s rates often requires fresh equity just to get a deal to close. And some sponsors simply do not have it. When a balloon payment is due and the math does not work, the property goes to market.
That is where the opportunity starts to emerge.
What Distress Actually Looks Like
Not all maturities create buying opportunities. Some do not produce distress at all because the underlying asset is strong and the sponsor can navigate the refinancing. Others produce distress at the wrong price point or in submarkets with genuine long-term headwinds.
The best opportunities will come from sponsors who bought well-located assets with solid fundamentals but structured the debt poorly. The property itself has value. The capital stack is just broken. Those deals can often be acquired at meaningful discounts because the seller needs to close quickly and cleanly.
You want to avoid distress driven by obsolescence or submarket deterioration. A below-market price on an asset nobody wants is still a bad deal.
How to Position Yourself Now
The investors who will capitalize on this window are the ones who are preparing now rather than waiting until a deal surfaces. That means a few things.
First, get your capital stack figured out. If you are planning to be a buyer, know how you are financing the acquisition before you need to move. Lines of credit, private lending relationships, or equity partner commitments should be in place, not in progress, when you find the deal.
Second, get clear on your criteria. Chasing distress broadly is a good way to waste time. Define the markets, asset types, and price ranges where you actually have the expertise and relationships to execute. Then stay in that lane and let the noise pass.
Third, build your broker and servicer relationships now. A lot of distressed deals will never hit the open market. They will get resolved quietly through direct conversations with special servicers, lenders, and brokers who have existing investor relationships.
The Window Is Real but Not Forever
Extend and pretend has limits. As loans continue to mature and lenders work through backlogs of underperforming notes, the volume of forced sales is likely to increase through 2025 and into 2026. That does not mean prices will collapse. But it does mean that investors with dry powder and clear criteria are about to have more negotiating leverage than they have had in years.
Questions or deal conversations? Reach out at info@coloradorecon.com.
