Bank CRE Loan Distress Rate Declines for First Time Since 2022 Article originally posted on Globe St. on September 10, 2025 For the first time in more than two years, the share of troubled commercial real estate loans on bank balance sheets edged lower in the second quarter of 2025. But while the slight decline offers a measure of relief, the overall rate of distress remains near historic highs, underscoring the pressure still facing the sector, according to a CoStar analysis of Federal Deposit Insurance Corp. data. The distress rate fell to 1.52% of total bank CRE loans, down from 1.59% in the first quarter, which marked the highest level in the data series. In dollar volume, troubled loans slipped from $45.7 billion to $43.9 billion over the same period. Even with the improvement, delinquency rates remain well above the pre-pandemic average of 0.65%, CoStar reported. According to the FDIC, distressed loans include those that are at least 30 days past due or in nonaccrual status, meaning they have gone unpaid for 90 days and are not expected to be repaid. CoStar’s analysis noted that much of the recent decline stemmed from shorter-term delinquencies of 30 to 89 days, many of which shifted into the 90-days-or-more category. Loans delinquent for less than 90 days dropped 21% from the prior quarter, reaching their lowest level since mid-2024. Non-owner-occupied properties dependent on rental income, such as industrial, hospitality, retail and office assets, saw some improvement. Large banks—those holding more than $250 billion in assets—reported a distressed loan rate for these income-producing properties of 4.33%. While down from a peak of 4.99% in the third quarter of 2024, the rate remains almost three times higher than the broader lending market. The total industry volume of distressed non-owner-occupied loans decreased by $387.1 million, or 1.6%. The broader concern is that banks will soon face a far greater test. A wave of commercial real estate debt is set to mature in the coming months, creating what analysts describe as a looming stress point for lenders. Moody’s estimates that nearly two-thirds of banks’ real estate loans will come due by the end of this year—an amount roughly on par with the tangible common equity held by those institutions. With refinancing options constrained by elevated interest rates and persistent market headwinds, analysts at Moody’s warn that the concentration of risk could translate into broader financial strain if economic conditions weaken further.