The foundation of U.S. commercial real estate is splitting under quiet pressure. Not from headlines. From missing disclosures, extended loans, and regulatory blind spots. Behind the clean earnings calls and glossy loan books lies $12 trillion in assets that no one fully understands.
The Financial Stability Board just issued a global alert on hidden exposures. Office vacancy rates are approaching historic highs. Loans tied to empty buildings are stacking missed payments. Yet banks hold the paper like nothing’s wrong. Miss five payments, then six, then eight. No foreclosure. No markdown. The loan gets extended. The loss never hits the books.
Regulators are warning of hidden vulnerabilities in the $12 Trillion commercial property market including lack of data on how much exposure banks have 👀👀👀 pic.twitter.com/jctLBViZjH
— Barchart (@Barchart) June 20, 2025
By late 2024, commercial mortgage-backed securities in the office sector showed 12.6% distress. Retail followed close behind at 11.2%. That is not ambient market noise. That is a system blinking red. Regional banks hold the largest exposure, with roughly $2.7 trillion in commercial property loans on their balance sheets. Most are tied to outdated appraisals.
The trouble is layered. Property valuations remain artificially high. Interest rates have made refinancing nearly impossible. Leasing demand has shifted permanently. Downtown corridors in cities like San Francisco and Chicago are hollowed out, yet landlords are still penciling in pre-COVID rent assumptions to avoid triggering defaults.
The data void is critical. Regulators do not have reliable metrics on how deep the exposure runs. Supervisory bodies issued warnings, but enforcement is missing. Extend and pretend has gone from tactic to policy. The accounting games of 2007 never stopped. They just changed dress code.
Leverage is stuffed inside real estate funds, insurance portfolios, and pension allocations. Many investors can pull capital faster than the assets can be sold. The mismatch will snap when redemptions accelerate. This isn’t about a few properties under water. It’s a full sector operating on silence.
Regulators haven’t imposed transparency. They’ve tolerated opacity. Banks want to avoid balance sheet hits. Funds want to avoid panic withdrawals. So the bad loans stay buried. But the longer they sit, the worse the unwind will be when it comes.
Sources:
https://franetic.com/regulators-alert-to-unseen-risks-in-12t-property-market/