By Mari Hansen You might not notice anything out of the ordinary if you stroll past the Argonaut on Broadway in Midtown. Even with scaffolding covering its lower floors like a bandage, the 115-year-old structure still has a certain dignity to it. However, its mortgage was discreetly transferred at the end of last year.
Perhaps weary of waiting for a turnaround that never materialized, Deutsche Bank and another German lender sold the past-due loan to a family office connected to George Soros. It was the type of transaction that tells you nearly everything you need to know about the future of commercial real estate but doesn’t make the front page.
| Field | Detail |
|---|---|
| Topic | Commercial Real Estate (CRE) Debt Offloading by Major Banks |
| Total US CRE Loans Outstanding | Roughly $2.5 trillion held across all American banks |
| Current Delinquency Rate | Around 1.17% of all bank-held CRE loans (≈ $37 billion) |
| Notable Recent Sale | Deutsche Bank affiliate sold the delinquent mortgage on the Argonaut Building in Midtown Manhattan to George Soros’s family office |
| Other Sellers | Goldman Sachs, CIBC, and several regional US lenders |
| Peak Delinquency After 2008 Crisis | 10.5% in early 2010 |
| Manhattan Office Loan Delinquency Spike | More than 1,000% increase from January 2023 to January 2024 |
| Banking Strategy Under Pressure | The widely used “extend and pretend” approach |
| Most Exposed Institutions | Regional and community banks ($1B–$10B in assets) — CRE makes up ~44% of regional bank balance sheets vs. ~13% at large banks |
| Regulatory Watchdog | Federal Deposit Insurance Corporation (FDIC) — has flagged rising nonowner-occupied CRE loan stress |
| Driving Forces | High interest rates, post-pandemic remote work, falling office occupancy, refinancing difficulty |
| Outlook | Bank losses considered inevitable, though not yet at crisis scale |
Most people are unaware of how frequently these deals occur. Loans associated with troubled office buildings in Boston, San Francisco, and New York were sold by Goldman Sachs. The Canadian lender CIBC sold about $300 million worth of mortgages on a dispersed group of US office buildings. It hasn’t been promoted at all. Banks seem to prefer to avoid drawing attention, and it makes sense—shareholders dislike being reminded that the buildings listed on the books might not be worth what the books claim.
The preferred term used by the industry to describe the current situation is “extend and pretend.” Banks pretend that the math will somehow work itself out and extend loan deadlines for landlords who are unable to fill their half-empty towers.
It did for a time. It appeared to, at least. However, tenants aren’t coming back to the office in the numbers that landlords once anticipated, and interest rates haven’t decreased as many bankers had secretly hoped. Thus, the plan is failing. Some lenders have begun to accept the loss now rather than risk a larger one later because they are keeping a closer eye on the calendar than they will acknowledge.
The difference with 2008 is difficult to ignore. The rot was residential at the time, and it spread more quickly than anyone had anticipated. This time, the banks are, for the most part, better capitalized, and the problem is concentrated in office towers and multifamily buildings in overbuilt markets. Delinquencies are currently slightly over 1%, far from the peak of 10.5% that followed the previous crisis. Moody’s analysts have noted that borrowers now have more options for funding and that CRE loans carry less leverage. In other words, the doom-loop predictions might be a little exaggerated.
The figures below, however, are not reassuring. Over the next three years, the US will have to pay off about $2 trillion in commercial real estate debt. In just one year, the office loan delinquency rate in Manhattan increased by over a thousand percent. Compared to the giants, regional banks—those with assets between $1 billion and $10 billion—are almost five times more vulnerable to CRE. It’s not a footnote. The next stress test will take place there.
The way larger banks are positioning themselves is intriguing. Large institutions only have roughly 7% of their assets linked to CRE on paper. However, the exposure increases by about 40% when you take into account indirect lending to real estate investment trusts, which are cash-strapped due to their dividend obligations. It appears that investors think the large banks are protected. The truth is more complicated.
When you speak with people in the industry, the tone is a mix of cautiousness and resignation. Jay Neveloff, who oversees Kramer Levin’s real estate division, has been assisting family offices that banks have personally contacted in an effort to find purchasers who are prepared to relinquish loans at a reduced rate. By design, the deals are silent. No one desires a panic. However, the story lies in the willingness to sell at all, effectively acknowledging that the loan will not be repaid in full.
Rates, occupancy, and the patience of bank boards will determine whether this turns into a gradual bleed or something more severe. For the time being, analysts continue to characterize the sell-offs as “one-offs,” a term they repeat like people whistling past cemeteries. Whether the worst of it is contained or merely concealed by scaffolding is still unknown.