Bank Loan Modifications Surge as CRE Pressures Mount Article originally posted on Globe St. on October 8, 2025 U.S. banks are modifying commercial real estate loans at a surging pace, a trend that highlights the financial strain affecting the sector. By the end of June 2025, the total value of CRE loan modifications had climbed 66% over the past four quarters, according to an analysis by the Federal Reserve Bank of St. Louis. Banks are required under accounting standards to disclose loans that have been altered due to financial difficulty—whether through principal forgiveness, interest rate reductions, delayed payments, extended terms or a combination of these measures. These adjustments are often the product of negotiations between lenders and borrowers during times of economic stress, such as the pandemic years. “Prudent modifications done in a safe and sound manner can serve to mitigate adverse effects on borrowers and their communities,” wrote Raelene Angle-Graves, lead policy analyst in the St. Louis Fed’s supervision, credit and learning division, along with Julianne Baer, a manager in the same division. The recent surge in modifications traces back to the abrupt shift from a zero interest rate policy to significantly higher rates aimed at countering inflation. Those conditions have strained investors who once relied on low-cost, high-leverage borrowing. “Many loans originated during ZIRP that were underwritten with zero interest rates and peak cycle underwriting are either underwater or close,” Ryan Alfred, CEO of Atrium, told GlobeSt.com. Investors without sufficient capital—unable to secure new financing—left banks facing the risk of foreclosure losses. That risk has prompted a defensive posture from lenders. “Higher default risk means higher reserves for potential loan losses must be made,” said Creighton Oswald, a managing director in the financial services practice at FTI Consulting, in an interview with GlobeSt.com. With interest rates still elevated, Oswald noted, many institutions have adopted an “extend and pretend” approach, prolonging terms on troubled loans to delay recognizing losses. The numbers illustrate the momentum. By the end of June 2024, modified bank-held CRE loans totaled $16.7 billion. Quarterly figures continued to expand: $20.3 billion in Q3 2024, $23.1 billion in Q4 2024, $25.1 billion in Q1 2025 and $27.7 billion in Q2 2025. The St. Louis Fed authors pointed to several factors at play beyond the rapid interest rate escalation, including shifting supply-and-demand dynamics in CRE and higher operating expenses. For many, the most urgent challenge lies ahead. “A central pressure point is the approaching maturity wall: a wave of commercial real estate loans originated during the low-rate environment of 2019–2021 that are now coming due,” said Carey Heyman, managing principal of the real estate industry at CLA. Refinancing, Heyman added, has become increasingly difficult not only because of elevated borrowing costs, but also due to falling property values and weaker tenant demand in key asset classes.