Commercial real estate distress may be increasing, but headline figures can sometimes mask what is happening beneath the surface. In August, the commercial real estate collateralized loan obligation distress rate rose from 19% to 28%, according to CRED iQ. The increase appears to have been driven largely by loans originated in 2021 and 2022, indicating that pressure was more concentrated in those vintages rather than spread evenly across the broader market.
Office debt is also coming under pressure. CRED iQ data reported by Commercial Observer showed that the office CMBS delinquency rate reached 13.2% in August, though the figure drops to 9.8% when performing matured loans are excluded. This distinction is important because the term distressed can refer to very different financial circumstances.
Meanwhile, the lending environment is not moving in a single direction. The Federal Reserve’s July 2026 Senior Loan Officer Opinion Survey found that banks generally reported easing lending standards and largely unchanged demand for commercial real estate loans during the second quarter. This suggests investors may need to look beyond broad market narratives and examine the financing behind each individual property.
This is where a credit-market perspective can prove valuable. A building may have reliable tenants, a strong location, or meaningful replacement value while still carrying debt that is challenging to refinance. Similarly, a low asking price does not automatically make an asset attractive if its capital structure, operating expenses, or required improvements leave little margin for error.
Jack A. Wright, owner of Black Rhino Capital Group, says his experience in distressed credit and derivatives has influenced how he assesses private-market assets. Instead of starting with whether a property appears undervalued, he says he examines the broader financial structure, including financing costs, debt terms, replacement costs, and the economic conditions shaping the local market.
“Real estate has to be viewed within the full financial picture,” Wright says. “The price of the building is only one part of the decision. Investors also need to understand how the asset is financed, what it would cost to replace, what the debt requires, and whether the surrounding market can support the investment over time.”
Wright draws a comparison with analyzing a convertible bond. A convertible bond combines elements of debt and optionality, with the potential to convert into equity. While the comparison is not exact, he uses it to encourage investors to consider multiple layers of value rather than viewing real estate as a single figure on a spreadsheet.
This approach becomes particularly relevant when refinancing pressure creates a disconnect between a property’s physical usefulness and the terms of its debt. Federal Reserve researchers have continued to study this challenge. A June 2026 revision of New York Fed research found that maturity extensions on distressed commercial real estate loans can shift more mortgages into near-term maturity windows, potentially concentrating refinancing pressure in the future.
Wright cautions that a troubled loan should not automatically be seen as an investment opportunity. Instead, he believes investors can benefit from applying questions commonly used in credit-market analysis. These include where the debt sits within the capital structure, when it matures, how refinancing costs might affect returns, whether additional capital may be required, and how assumptions about rents, occupancy, and local economic growth influence the investment as a whole.
Location introduces another important consideration. The Federal Reserve’s commercial real estate examination guidance highlights factors such as geography, property type, tenant concentration, risk ratings, and credit structure when assessing CRE portfolios. Wright believes this helps explain why broad national statistics may not fully reflect the circumstances surrounding an individual property. A warehouse, office building, apartment property, multifamily asset, or redevelopment project in a growing employment corridor, for instance, may face very different conditions from a comparable property in a market experiencing weaker demand.
“It’s a lot more complicated than sticking it in an Excel spreadsheet. The opportunity is often in understanding why something is mispriced,” Wright says. “A financing problem and a property problem are not always the same thing. The more clearly an investor can separate the asset, the debt, and the local market, the better informed the decision can become. Your thinking needs to change as the yield curve changes.”
In a market experiencing uneven levels of distress, that distinction could become increasingly significant. Real estate investors do not need to become bond traders, but they may benefit from adopting one key discipline from credit markets: understanding how an investment is financed before determining what the underlying asset is worth.
