The commercial real estate distress cycle may be further along than transaction data suggests. That is the view of Kyle Stevenson, senior managing director and head of Berkadia Special Situations, who sees mounting strain in existing loan portfolios, growing receivership activity and a rising number of lender-involved sale processes—signals that can remain largely invisible until troubled assets finally trade.
The immediate issue is not simply that values have fallen or that interest rates remain elevated. It is that a growing number of borrowers face a mismatch between loans made in a far cheaper financing environment and the debt terms available today.
Some properties cannot be refinanced at all under current underwriting. Others can obtain replacement financing, but their cash flow cannot support the higher debt service that comes with it.
That pressure is especially acute in multifamily, including properties financed with floating-rate debt during the 2021-to-2023 investment surge and older assets that now require capital their owners cannot provide. Stevenson believes the market is only in the early stages of a broader resolution process—one likely to produce more activity over the next 12 to 24 months.
Stress Is Building Inside Existing Loans
For Stevenson, the most important source of emerging distress is embedded in existing loan books rather than visible in a wave of completed distressed sales.
Properties financed when borrowing costs and cap rates were low now face a different reality. Interest rates rose sharply beginning in 2022, pushing cap rates higher and property values lower. For borrowers with loans coming due, the result can be a refinancing gap large enough to erase their remaining equity.
“A lot of the stress, at least in the multifamily world where we focus, has to do with loans that replace three- to five-year loans in that time frame,” Stevenson told GlobeSt.com. “Now the sponsor, in many cases, has no equity left in the property.”
The problem is not limited to borrowers that have already missed payments. A property can remain current on a fixed-rate loan and still be headed toward trouble when its debt matures. If it must refinance into a higher-rate loan, the property’s income may no longer cover the new debt service.
“You could be current, but if that loan matures and you have to get a new loan at a higher interest rate, you won’t cover it,” Stevenson said. “So your loan may not mature until next year or the year after, but that’s going to be a time bomb.”
That dynamic helps explain why the distress cycle can appear quieter than it is. The pressure may build well before a borrower defaults, a lender takes action, or an asset enters the market.
Receivers Offer An Early Warning
One of the clearest signs of stress, Stevenson said, is the growing workload of court-appointed receivers. Those firms take control of troubled properties during disputes or enforcement proceedings, often at lenders’ request and their activity can offer an early look at distress that has not yet appeared in sale statistics.
“Without fail, they’re as busy as they’ve ever been,” Stevenson said of receivers. “They see more referrals coming to them from lenders because of the problems. So that’s a sign of stress.”
Receivership cases are not always immediately visible to the broader investment market. A property can spend months moving through court processes, property management changes and sale preparation before a transaction closes and becomes a comparable sale.
Stevenson said receivership sales commonly take six to 12 months to work through the system.
“That is the most impactful point to a reader,” he said. “It doesn’t seem like there’s distress necessarily, but it is coming.”
The same pattern is emerging in the investment-sales market. Stevenson said investment sales advisers are increasingly pitching assignments involving lender participation or lender pressure, even when the lender has not formally taken control of the property.
“The busyness of the investment sales advisers who are advising on properties where the lender is involved” is another important indicator, he said. “Not necessarily the lender-controlled sale, but a lender-driven sale.”
Those assignments draw attention from buyers because they can signal a seller with less flexibility and a lender motivated to establish a path to resolution.
“The buyers do gravitate toward transactions where they believe that there’s going to be lender pressure,” Stevenson said.
Floating-Rate Debt And Older Assets Face Pressure
The most vulnerable assets are not uniform, but Stevenson sees a distinct profile emerging. Multifamily properties bought or refinanced with floating-rate debt during the 2021 and 2022 run-up face a sharp change in their cost of capital. Many were underwritten at low interest rates and aggressive valuations, leaving little room for error once rates reset higher.
Older apartments present a separate but overlapping challenge. Stevenson pointed to 1970s- and 1980s-vintage Class C multifamily properties, particularly those that need substantial capital expenditures and have suffered from declining occupancy or deferred maintenance.
“If we had to look for the prototype of distress, it’s probably an older ’70s- to ’80s-vintage Class C property that needs a lot of capital expenditures and it’s probably got very low occupancy,” he said.
The problem can worsen as owners run short of cash. Without capital to address repairs, renovate units or maintain the property, an already vulnerable asset can fall further behind its competitors.
“When you run out of money and you can’t repair the properties and you can’t give them the upkeep that they need, they fall into disrepair,” Stevenson said.
“That’s the face of distress right now—properties that are undercapitalized and have a lot of deferred maintenance.”
The buyer pool for those assets has also narrowed. Stevenson said many investors now favor multifamily properties built in the 1990s or later, partly because older buildings carry a higher probability of significant capital needs. At the same time, some of the syndicators that were active buyers of older apartment properties during the market’s peak have lost equity and are no longer in a position to acquire new deals.
Certain hotel properties face similar challenges when they are obsolete, undercapitalized or unable to generate enough cash flow to justify the capital required to reposition them.
Lenders Are Not Rushing To Liquidate
A common assumption in a distressed market is that lenders will move quickly to foreclose and sell properties at steep discounts. Stevenson said that view misses how many lenders are approaching the current environment.
Distress does not automatically mean a fire sale. Lenders often evaluate the difference between an asset’s value today and its potential stabilized value after capital improvements, lease-up, or a new operating plan. In some cases, that analysis favors holding an asset, taking control or investing more capital rather than selling into a weak market.
“There’s a value today. There’s an as-is value, and then there’s an as-stabilized value,” Stevenson said. “Lenders are looking at both.”
That can mean consulting investment sales advisers and other market participants to assess what a property could command today, then comparing that figure with its potential value after renovation, operational changes or occupancy improvements.
The lender must decide whether the additional time and capital required to stabilize the property can produce a better recovery than an immediate disposition.
“Just because it’s distressed doesn’t mean that it’s a fire sale or that there’s a race to liquidate,” Stevenson said.
“Lenders are saying, ‘We need to fix these properties up if they need it. We need to run a business plan to create value here, rather than just sell the property now.'”
That approach is particularly relevant for debt funds, private equity firms and other nonbank lenders that may be able to take back an asset and treat it as part of an equity portfolio. The original sponsor may have exhausted its capital, but the lender may still see a viable path to improve the property and recover more value over time.
The shift, Stevenson said, is not necessarily “extend and pretend.”
It is closer to extending with a business plan: confronting the property’s current value, identifying the capital or operational work required and acting before the lender’s options narrow.
Apartments Remain A Major Share Of Distress
The broader market data underscores the stakes. Distressed sales represented 4.77% of total U.S. apartment sales in the second quarter of 2026, according to MSCI Real Capital Analytics data, as of Sept. 2.
Office and apartments account for the largest portions of outstanding commercial real estate distress, representing 44% and 26%, respectively. Together, the two sectors account for 70% of total distress, according to MSCI Real Capital Analytics.
For apartments, geographic conditions matter. Stevenson said the Northeast has a large share of apartment distress, with rent-stabilized properties in New York City contributing to the pressure.
In the Sun Belt, where investment and development activity surged in 2021 and 2022, supply growth has made it more difficult for some owners to increase income enough to work through their capital-structure problems.
Markets with heavy new supply, such as Austin, can make it especially difficult for troubled owners to “earn their way out” of a loan problem, he said. Lower occupancy, slower rent growth and heightened competition can limit a property’s ability to generate the cash flow needed to support debt service or finance improvements.
A Longer Resolution Process Is Ahead
Stevenson expects transaction activity to rise as borrowers and lenders confront the realities of current valuations and approaching maturities. The next six to 12 months could bring more assets to market as lenders work with borrowers to test sale options before loan maturities force a more urgent resolution.
“The maturity of a loan tends to be the biggest pressing point for activity,” he said.
“To the extent that a maturity is in the wings, say in the next six to 12 months, I believe that lenders are starting to be collaborative with their borrowers and say, ‘We need to take this to market to see if we’ll be able to make this work.'”
Still, the process is unlikely to be brief. Stevenson compared the likely timing to the aftermath of the global financial crisis, when the collapse of Lehman Brothers in 2008 preceded the broader market capitulation that emerged more clearly in 2011 and 2012.
The current downturn lacks a single defining event, he said and has instead advanced gradually through higher rates, falling values and approaching maturities.
“I think we’ve got at least another 12 to 24 months of the problems increasing, based on what we’re seeing,” Stevenson said.
For investors, the key may be to look beyond the completed distressed-sale data. The more revealing signs may be found in court-appointed receiverships, lender-driven marketing processes, capital-starved older properties and loans that have not yet matured—but may no longer be financeable when they do.
