For three years now, the commercial real estate industry has been playing a waiting game.
Lenders extended troubled loans, and deal sponsors were able to hold on to underperforming assets. Everyone hoped rates would drop, values would recover, and we would all carry on like nothing happened.
That era is ending.
Marcus & Millichap just published their recap of the 2026 National Multifamily Housing Council Conference in Las Vegas – and while the whole video is worth watching, one finding jumped out at me: many financial institutions are finally holding investors’ feet to the fire on overdue loans.
I didn’t attend NMHC this year, but Marcus & Millichap’s takeaways mirror conversations I’ve been having with operators across the country. The climate of “extend and pretend” that allowed struggling deals to limp along is giving way to forced resolution. In many cases, investor equity is completely wiped out, and banks are taking some losses.
But the key shift is this: lenders have reached a point where they can absorb those losses and are choosing to clear the books.
What does this mean for passive investors? And more importantly, why could this be good news?
What resolution actually looks like
Two paths are emerging for troubled assets:
Negotiated transitions: lenders are partnering with stronger operators to take over existing debt, sometimes with extended terms while the new sponsor stabilizes operations
Foreclosure and receivership: lenders take control, stabilize the property, then sell it
But many of these properties aren’t going to foreclosure in the traditional sense. Instead, banks are quietly reaching out to sponsors they know and trust. The conversation goes something like: “We’ve got a problem property and are forcing a sale. Are you interested?”
It’s a private marketplace most investors never see. No courthouse steps or newspaper headlines. Just banks trying to minimize their losses by selling to operators they know can actually run these properties profitably.
If you’re currently in deals
This explains the pressure many sponsors of 2021-2023 vintage deals are facing right now. Pay attention to how they’re communicating and navigating this environment. It reveals character and capability.
A forced sale is never good. But this process at least brings an end to years of limbo and enables investors to make more informed decisions about future investments
If you’re evaluating new opportunities
This shift changes the opportunity set in two ways.
Distressed acquisitions are coming to market at lower basis points. That means better entry prices and stronger fundamentals from day one.
The sponsors still standing after this shakeout have proven something. Marcus & Millichap notes that there were far fewer syndicators at the conference than in prior years. But those who did come were generally the strongest and largest, with proven track records.
The weak players are being shaken out. The strong ones are getting stronger.
Three other forces are aligning
This resolution wave isn't happening in isolation:
Supply is finally thinning. The Sunbelt overhang that’s been weighing on fundamentals is being digested. New construction is down over 50% from its peak, back to 2015 delivery levels. And new developments are difficult to pencil right now given interest rates, materials costs, and labor expenses
Debt availability is improving. Fannie & Freddie increased their 2026 lending caps by more than 20%, and the Mortgage Bankers Association predicts a 24% increase in CRE lending this year. The consensus at NMHC was that accessing debt won’t be the challenge in 2026
Investor capital is ready. Marcus & Millichap noted that many operators at NMHC are planning for 5, 10, even 15+ transactions in 2026. Institutions and major investment funds, especially those with dedicated capital like family offices, were noticeably more enthusiastic as well
The takeaway
For passive investors, this is the reset the market needed.
Troubled assets are finding new homes. Stronger operators are emerging. And fundamentals are finally getting a chance to recover without the constant overhang of “extend and pretend” weighing on the market.
Ken McElroy said back in 2024 that we were in the third inning of a nine-inning game. I think we’re somewhere in the sixth or seventh inning now.
The waiting is over. The real game is starting.