As major banks accelerate efforts to shed troubled commercial real estate loans, borrowers are discovering that a write-down doesn't mean relief—it often marks the beginning of a more complicated and higher-stakes negotiation.
Banks are increasingly marking down nonperforming CRE loans to take losses and clean up their balance sheets. But while that may improve bank optics, it does little to resolve the underlying debt. Instead, these situations frequently evolve into restructurings, distressed sales or enforcement actions, each carrying significant legal and financial consequences for borrowers.
"A write-down isn't the end of a loan; it's the start of a negotiation," Michael Lefkowitz, Managing Member at Rosenberg & Estis, tells GlobeSt.com.
First-quarter 2026 disclosures show several large institutions actively reducing their exposure. Bank of America has been the most aggressive, cutting nonperforming CRE loans by 44% year-over-year to $1.2 billion while also reducing credit-loss reserves by $200 million. PNC Financial Services reduced its nonperforming CRE loans by 26% to $630 million. Wells Fargo reported a more modest 2.6% decline to $3.7 billion, though its overall CRE exposure remains among the largest in the industry, meaning even small percentage changes represent significant balance-sheet shifts.
For borrowers, those balance-sheet moves often translate into mounting pressure. Distress is rising in key markets, particularly in New York City multifamily. The distress rate for those loans has climbed to 14.4%, up from 7.2% two years ago, largely concentrated in pre-1974 properties. Of the roughly $1.8 billion in multifamily CMBS debt in the city, 90% is tied to rent-restricted assets.
"Not surprisingly, the city accounts for 43% of the distressed multifamily loan balance in CMBS," according to Lefkowitz.
As distress deepens, borrowers are increasingly drawn into complex restructurings. These often involve amend-and-extend agreements, forbearance agreements, or debt-to-equity conversions, Lefkowitz says, requiring renegotiation of loan documents, guarantees and covenants—sometimes amid disputes across the capital stack.
If those efforts don't succeed, options become more disruptive.
"If restructuring fails, distressed sales can include note sales, discounted payoffs, UCC foreclosure, and deed-in-lieu of foreclosure," he said.
"In these cases, title transfers can be complicated, and there is litigation risk from creditors and equity investors, as well as potential claims of fraudulent conveyance and significant tax consequences."
In more severe cases, borrowers can face mortgage foreclosure actions and receivership proceedings that stretch on for years. Bankruptcy, while less common, introduces another layer of complexity, including automatic stays, court-driven restructuring and valuation disputes.
Even as lenders move loans off their books, the legal process continues. Write-downs can trigger loan classification changes, increased reserves and regulatory scrutiny for banks, but they do not eliminate the borrower's obligations.
"This is why write-downs don't resolve anything—they just acknowledge the loss while the legal process must still play out," Lefkowitz said.
At the same time, ownership of distressed debt is shifting. Loan sales are transferring control from traditional relationship lenders to opportunistic buyers who acquire debt at a discount and often pursue more aggressive recovery strategies.
"This changes the negotiating landscape," Lefkowitz said. "Borrowers who once dealt with relationship lenders now face counterparties who do not care about long-term ties and focus on maximizing recovery.
"The greatest exposure often appears in highly leveraged assets, especially rent-regulated multifamily and obsolete office, where falling values and constrained cash flow create loan imbalances."
For borrowers, that shift can mean diminished flexibility, tighter timelines and fewer refinancing options in a market where capital remains selective. At the same time, lenders must weigh realized losses and reputational risk, underscoring that even as loans are written down, the consequences for both sides are far from settled.
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