A moment of truth: navigating office financings and sales

As the office sector grapples with uneven demand and elusive valuations, lenders are quietly shaping outcomes—delaying foreclosure, extending loans, and allowing risk to build in unexpected corners of the market. With a wall of maturities on the horizon, the industry stands at a crossroads: continue to defer, or confront the realities ahead.

The office sector is still in flux, and many capital stacks don’t match evolving market realities. Leasing remains uneven, demand is shifting, and valuations are frequently clouded by a lack of transactional evidence.

While the broader lending environment has shown marginal improvement in recent quarters, the recovery remains shallow and uneven, especially for the office sector. For many assets, particularly in smaller or less-liquid markets, financing is still either prohibitively expensive or unavailable altogether.

In this context, lenders have taken center stage. Rather than move swiftly to enforce remedies, many have chosen to extend or restructure loans, especially when forced sales would realize losses. This has kept formal distress levels low and temporarily delayed broader price discovery, but it has also allowed risk to accumulate—notably in secondary and tertiary central business districts, where liquidity is thinnest.

A growing wall of maturities between 2026 and 2028 is set to challenge this approach. Many loans maturing in that window were originated during the low-rate cycle and are now underwater, with few viable takeout options. If the lending recovery stalls or cap rates remain elevated, the strategies that have prolonged the current status quo may no longer be sustainable.

“Extend and Pretend” remains prevalent

Lenders continue to delay recognition of losses, particularly on office assets, by favoring refinancings and loan extensions over forced sales or foreclosures. This is an approach that reflects caution in an uncertain market. As shown in the chart below, 72% of office-related capital inflows year-to-date have come from refinancings, while only 28% have been from sales. This is a sharp deviation from pre-pandemic trends when sales and refinances were more evenly balanced. Despite continued stress in the office market, distressed sales have accounted for just 9.2% of total office transaction volume in 2025, underscoring the reluctance of lenders to take back assets. Instead, they’ve largely opted to restructure loans or extend terms—hallmarks of the ongoing “extend and pretend” strategy.

Where risk is accumulating (it’s not where you’d think)

While the report notes that nearly 70% of office foreclosures have occurred in major markets such as Manhattan, Chicago, and Houston, this likely reflects a greater willingness by lenders to foreclose in liquid, institutional markets where recoveries may be – or become - stronger.

Conversely, the disproportionately low number of distressed sales—despite significant drops in property values—suggests that large towers in secondary and tertiary CBDs are seeing the bulk of loan extensions and refinancings. These are typically harder-to-sell assets with limited repositioning options and less vibrant surroundings, making foreclosure unattractive and further encouraging delay tactics by lenders.

What happens when loans come due? A maturity wall approaches

This dynamic may be tested in the coming years as the market faces a significant wave of loan maturities from 2026 through 2028. Avison Young data shows that in 2025 alone, $20.6 billion in pre-2021 fixed-rate office CMBS loans are scheduled to mature, along with another $26.4 billion in other office CMBS loans. Maturities rise even more sharply in the following years, setting up a potential inflection point for the capital markets.

Most of these loans were originated during a period of low interest rates and more optimistic underwriting assumptions. Refinancing will be increasingly difficult without additional equity, improved fundamentals, or lender forbearance. If rates remain elevated or property values fail to recover, the current strategy of extensions and amendments may no longer be viable, setting the stage for increased volatility and distressed sales activity.

What’s next?

For those willing to lean in, this moment offers a rare chance to reshape portfolios, rethink asset strategies, and lead the next chapter of urban transformation. Our data paints a picture of a market still in the throes of price discovery, with lenders kicking the can down the road on troubled office debt (especially for large, illiquid assets in non-core markets). But as the maturity wall builds, this strategy may prove unsustainable, leading to broader repricing and potential dislocation in the years ahead. The industry has a choice: continue to delay, or step into opportunity.

Reach out to our experts to learn more about how to make the most of this opportunity.

Michael T. Fay

- Chairman, U.S. Capital Markets Group Executive Committee, Principal, Managing Director - Miami
- Capital Markets Group
- Consulting & Advisory
- Investment Sales

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Stephen Englert

- Senior Financial Analyst
- Capital Markets Group

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