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ommercial real estate loans, once a source of concern for banks due to the COVID-19 pandemic and economic uncertainty, are no longer a hot topic. Analysts and bankers have become less worried about mass defaults and major losses, according to Stephen Lynch, vice president of Moody's Ratings. "I think the feverish concern of these mass defaults and mass major losses geographically across the U.S., independent of region, is taken off the table," Lynch said.

    Instead, lenders are focusing on cleaning up properties that aren't capitalized correctly or haven't been stabilized to current conditions. The so-called extend-and-pretend strategy, where lenders modify loans to avoid taking losses, has worked for the most part, said John Toohig, head of whole loan trading at Raymond James.

    Commercial real estate deals are picking back up, with transaction volumes up 13% in the first half of 2025 from the same period last year, according to MSCI Real Assets. Valuations seem stable, and banks have had time to set aside reserves for potential losses.

    While there will still be some losers, Toohig said, "it does appear like we're on the other side." The challenges ahead are idiosyncratic across individual properties and tied to specific geographic regions and asset classes. Office properties have been a source of woe due to work-from-home policies, while multifamily loans showed signs of stress due to rising interest rates and oversupply in some areas.

    However, there's been "natural healing" in the office sector, said Christopher Wolfe, managing director of U.S. banks at Fitch Ratings, pointing to return-to-office policies that have helped shore up demand for space. The multifamily vacancy rate has also fallen to its lowest level since 2022, according to CBRE research.

    Recent deals and loan originations have provided more clarity on valuations, which can help lenders adjust their reserves. Five of the largest real estate firms increased their financial guidance for 2025 after logging strong earnings, boosted by leasing activity and property sales.