New Stress Points in CRE

Loan quality in the struggling office real estate sector seemed to further erode in the first quarter, while signs of trouble emerged in lodging—which had recovered following a long pandemic-era slump. That’s according to just-released information from RMA’s Credit Risk Navigator for the period running from January 1 to March 31, 2025. 

Trouble at the Office 

Of all the corners of commercial real estate tracked by the database, which benchmarks $1 trillion in commercial exposures, the biggest drop in loan status came in office CRE, where the percentage of nonperforming loans rose by 0.40 percentage points to 5.8%. Meanwhile, the share of office CRE in the larger “distressed” category—loans rated at 6-10 where 1 is best and 10 is worst—rose by about 0.8 percentage points in the first quarter to about 60%. 

The End of ‘Pretend’ 

Hopes that the office market is nearing or has hit bottom—and could soon rebound—may be fading, said Tom Cronin, product manager at RMA’s Credit Risk Navigator partner Automated Financial Systems, noting that the latest data “is saying it’s getting worse.”   

Cronin said the increase in nonperforming office loans could be evidence that more banks are moving beyond “extend and pretend” and beginning to acknowledge the likelihood of losses. 

Lodging Checks Out 

Meanwhile, the share of distressed loans rose faster in lodging than in office, up by about 4.5 percentage points during the first quarter to 45%. In talks with institutions that participate in the database, Cronin found that bankers are attributing the sudden decline in lodging to falling “consumer confidence, fear of tariffs, and so much uncertainty” about the economy. “People are not going out to eat as much and are cutting back on vacation.” 

Changing Itineraries 

International travel to the U.S. is also slowing. Visits from Canada, the U.K., and Germany dropped sharply in early 2025—driven in part by tariffs and shifting perceptions of the United States. Goldman Sachs analysts warned that reduced travel and boycotts could cost the U.S. economy as much as $90 billion this year, with tourism-heavy sectors like lodging likely to feel the effects first. 

Warning Signs From the Skies 

Cronin pointed to a recent Delta earnings call, where CEO Ed Bastian said, “I think everyone is going into a defensive posture. ... If that continues and we don't get resolution soon, we will probably end up in a recession.” 

Multifamily Stays Steady—for Now 

For the multifamily sector, which the Insider addressed a few weeks ago, non-performing loans rose slightly, by 0.05 percentage points, in the first quarter to 0.80%.  

As economic uncertainty persists and consumer behavior shifts, cracks in CRE performance may continue to spread. The first-quarter numbers suggest that momentum—good or bad—can build quickly.