Dilina Lallani and Christina Sanfelippo discuss commercial real estate distress in the Turnaround Management Association’s Journal of Corporate Renewal. Commercial real estate distress is increasingly being driven not by failing properties, but by maturing debt that was originated during a low-interest-rate environment and now must be refinanced at significantly higher borrowing costs. As nearly $2 trillion in U.S. commercial real estate debt is scheduled to mature in 2026 and 2027, many otherwise healthy and income-producing assets face financial pressure despite stable occupancy, revenue, and market fundamentals. Dilina and Christina examine how the post-pandemic “extend and pretend” strategy adopted by many lenders has contributed to a growing refinancing cliff, particularly in challenged sectors such as office properties, and explore the restructuring and insolvency options available to borrowers and lenders as these loans come due.

Dilina and Christina also highlighted how distressed borrowers and lenders are responding through out-of-court workouts, deeds in lieu of foreclosure, receiverships, foreclosure actions, and Chapter 11 proceedings. The article also considers the implications for Canada, where rising interest rates, tighter lending standards, and increased regulatory scrutiny are creating similar refinancing challenges. Lenders, borrowers, and insolvency professionals must adopt a more proactive and strategic approach to managing refinancing risk, recognizing that future distress may stem less from asset performance and more from capital structures that are no longer sustainable in today’s lending environment.

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