A First American economist says the best discounted buying opportunities won't last once distress starts to resolve
Commercial real estate distress has defined the market conversation for the better part of three years. With distress unlikely to fully resolve before year-end, commercial mortgage brokers are still in a window to secure strong deals for their clients.
Prices have fallen far enough that the market has crossed into a new cycle, capital is more available, and lenders are competing again. For brokers, that means the best discounted buying opportunities are available now, while distress is still elevated.
But the discounts that defined the post-peak period will not last indefinitely, according to one commercial real estate economist who has been tracking the shift closely.
Xander Snyder (pictured top), principal commercial real estate economist at First American, said the time to act is now before the distress window begins to close.
"I'm still long-term bullish because most returns in commercial real estate are made by people who are willing to selectively take well-calculated risk early in a cycle," Snyder told Mortgage Professional America. "And I think the fact that there are so many discounts to be had, in part because distress remains elevated. However, I don't think it will remain elevated forever. I think it's starting to work its way out."
Distress carrying into 2027
While Snyder sees some steps toward distress resolution, he doesn’t believe things will normalize by the end of the year.
"I don't think the elevated levels of distress will be resolved entirely by year's end," he said. "I think we're very close to peak in terms of delinquency rates. If we're not there, I think we're going to get to peak by the end of the year and start seeing some decline. But that means that elevated distress will carry on into 2027."
The vintage of loans driving current stress matters for brokers trying to identify opportunities, Snyder said. Loans originated in 2021 and 2022 are the ones creating opportunities for mortgage brokers.
"I think a lot of 21, 22 vintage loans that are 5-year or maybe they were 10-year but only had an interest rate cap that lasted three to five years, all of those sorts of loans are problems that operators are having to deal with right now," Snyder said. "And I do think that a lot of that presents opportunities for mortgage brokers."
The maturity wall will generate volume, Snyder said, but not all of it deserves equal attention.
"On net, I believe that'll create opportunities for mortgage brokers because a lot of that maturity wall will translate into refinance or sales volume," he said. "But not all of that maturity wall volume is going to be created equal. Some of it will be green light, clear refinancing opportunities, stable NOI. But others are going to need specialized capital, and maybe there are some deals where the operator's running low on reserves, and they need preferred equity or mezzanine financing."
Lender competition is increasing, and Snyder said the question for the second half of 2026 is how that manifests.
"Is that going to be more loan proceeds, is it going to be fewer restrictive covenants, is it going to be more non-recourse loans?" he said. "How exactly will lenders begin to compete with each other more?"
Don’t assume rates will fall
Across the mortgage landscape, rate predictions coming into 2026 were for steadily declining rates. Snyder said those who believe a big rate drop is needed for deals need to recalibrate their thinking.
"Don't assume that long-term rates need to come down from here," he said. "I think that it's a big assumption that a lot of people are making and it doesn't need to be true. If the yield curve were to revert to a shape that it has taken in the past, that very quickly gets you to a 10-year yield between 5% and 6%."
Sellers anchored to peak-cycle valuations are becoming fewer, Snyder said, and the bid-ask spread that locked up the market has narrowed significantly.
"More sellers are more realistic," he said. "And certainly for operators that have been through multiple cycles and especially for those who were operating pre-global financial crisis too, they know that these aren't abnormal rates."
In commercial real estate, that realism is more likely to be forced by structure than sentiment, he said. Unlike residential borrowers who can often wait out the market, many commercial operators face balloon payments that force a decision on a fixed timeline.
"Many loans have balloon payments. They don't amortize over the full balance of the loan, and so some sort of decision is forced earlier," Snyder said. "While that might be challenging for an operator, it does create a certain amount of pressure for increasing market liquidity."
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