Distress: Inside the Slow Reset of U.S. Commercial Real Estate

January 28, 2026.

 We are privileged to publish this article by Natalia Sosnina following her participation as a panelist at the IMN RTL & DSCR Forum in Aventura, Miami. In this piece, she expands on the themes discussed on stage, offering a deeper look into how commercial real estate distress is quietly reshaping the market through capital stack resets rather than headline-driven defaults.

I spend most of my time today not underwriting buildings, but underwriting capital stacks. That’s because the most compelling opportunities in U.S. commercial real estate emerging quietly, deal by deal, at loan maturities—inside refinancing conversations where existing capital structures no longer work.

What we really mean by “distressed assets”

When I refer to distressed assets in today’s market, I’m not talking about vacant properties, court-ordered sales, or visibly failing operations. Most of today’s distress appears when a property can no longer support its existing debt structure, even if the asset itself is operating, leased, and generating income. In other words, the distress is financial, not physical. A loan matures and can’t be refinanced on similar terms. Debt service rises while proceeds fall. Equity is wiped out—or sponsors are asked to inject more capital they don’t have. That’s distress in this cycle. And it’s why many of the best opportunities today sit inside the capital stack, not at the asset level.

Why this cycle looks different

Unlike prior downturns driven by collapsing fundamentals, today’s stress originates in the capital markets. Between 2019 and 2022, commercial real estate loans were underwritten in an ultra-low-rate environment. Assumptions around cheap refinancing, steady rent growth, and aggressive exit cap rates were embedded into almost every deal. Those assumptions no longer apply.

As loans mature, borrowers are discovering that refinancing is no longer a routine exercise—it’s a reckoning. Proceeds are lower, interest rates are higher, and underwriting standards are meaningfully tighter. Refinancing today is not mechanical. It’s a recapitalization event. And for many sponsors, that’s where the real problem begins.

The maturity wall as the real forcing mechanism

The volume of commercial real estate debt coming due over the next several years has become the market’s primary stress point. Each maturity forces a decision—often at a moment when both leverage and pricing expectations must reset.

Lenders, particularly banks, have generally avoided immediate foreclosures. Instead, many have chosen to extend loans, amend terms, or negotiate restructurings—especially when assets remain leased and sponsors are cooperative. But extensions are not relief.

They often come with equity injections, new rate caps, tighter cash controls, or structural changes to the capital stack. An extension is a bet. You’re betting that income improves or capital markets shift before the next maturity arrives. Not every deal survives that bet.

Office: where distress becomes structural

Office remains the most visible pressure point in this cycle.

While high-quality, well-located, amenitized buildings continue to attract tenants, commodity office assets face mounting challenges. Leasing costs have increased, tenant demand has shifted, and older buildings often require substantial capital just to remain competitive. In many cases, office distress is no longer cyclical—it’s structural.

At that point, the issue is no longer pricing. It’s use.

If a building no longer functions as office space in today’s market, the capital stack must reset entirely.

Multifamily: deal-specific cracks, not a collapse

Multifamily, long considered the safest asset class, has shown selective stress.

The most vulnerable deals tend to share common traits: peak-cycle acquisitions, floating-rate bridge debt, aggressive leverage, and short-term maturities.

In markets where new supply has slowed rent growth and increased concessions, margins disappeared quickly.

Multifamily distress isn’t universal. It’s highly deal-specific and market-specific, driven by local regulations such as those in NYC for example.

Where leverage was stretched and refinancing assumptions failed, the room for error vanished.

Where price discovery is actually happening

Despite rising stress, traditional transaction volume remains muted. Sellers resist marking assets to current values, while buyers underwrite based on today’s financing reality.

As a result, price discovery has shifted away from public transactions.

Increasingly, it’s happening through note sales, preferred equity positions, and structured recapitalizations. In this environment, the cleanest way to buy is often through the debt. That’s where investors can influence outcomes, control restructuring paths, and avoid paying peak-cycle pricing for assets that still require significant repositioning.

A negotiated unwind, not a dramatic collapse

This distressed cycle will not resolve in a single moment. It’s unfolding gradually, maturity by maturity, shaped by interest rates, regulatory pressure on bank balance sheets, and tenant behavior—particularly in office.

Waiting for a dramatic collapse risks missing the opportunity altogether. This is a negotiated unwind. Distress is arriving quietly.
The investors who succeed are those who understand capital structures, recognize stress early, and move before decisions become forced.