Bankruptcy Blog

Commercial real estate (CRE) bankruptcy filings increased in 2026 as higher interest rates, declining property valuations, and maturing debt placed additional pressure on property owners. Office, hospitality, and certain types of retail properties have been particularly affected, prompting lenders to reconsider loan extensions and pursue more aggressive enforcement strategies.

For distressed commercial real estate borrowers, Chapter 11 bankruptcy can provide tools to address financial challenges, negotiate with creditors, and maximize the value of their properties. The bankruptcy case involving New York City’s Pinnacle Group reveals how a court-supervised sale can offer an alternative to foreclosure and potentially improve creditor recoveries.

Why Are Commercial Real Estate Bankruptcies Increasing?

Several factors are contributing to increased financial distress in the CRE sector, including higher interest rates, declining property values, and a growing volume of maturing debt.

In the first quarter of 2026, commercial real estate recorded more than 40 bankruptcy filings, a 15% increase over the same period in 2025.  The increase in bankruptcy cases tracks with other indicators, such as the commercial mortgage-backed securities (CMBS) delinquency rate of 9.6%, approximately three times its level four years earlier.

Higher Interest Rates and Maturing CRE Debt

The biggest driver of increased distress is the interest rate environment.  For many years – arguably going all the way back to the global financial crisis – lenders have favored an “extend and pretend” strategy, allowing borrowers to extend loan maturity dates or receive forbearance rather than immediately face enforcement actions.

Over time, the number of extensions contributed to a “maturity wall” that grew steeper from 2022 to 2025. Approximately $930 million in CRE debt was scheduled to mature in 2026 alone.

With interest rates now higher and with declining hope for lower rates in the near term, lenders have become less willing to play the waiting game or grant additional extensions. At the same time, borrowers that did extend, or that had their rates reset, have experienced increased difficulty in servicing their debt.

Lenders that are unwilling to further extend debt are likely to embark on more aggressive strategies, including foreclosures, seeking appointment of receivers, out-of-court restructurings, and involuntary bankruptcy filings.

Common Factors in Commercial Real Estate Bankruptcy Cases

For CRE companies that have sought bankruptcy protection in 2026, there are certain common factors. 

Legacy debt with maturing loan terms. Many borrowers obtained financing when interest rates were lower and now face maturity dates or interest-rate resets that significantly increase borrowing costs. 

Declining property valuations. Many borrowers saw asset valuations that were significantly lower than they had been at their peak, often lower than the balance on the debt, making refinancing and repayment more difficult.

Complicated capital structures. Some commercial real estate borrowers have mezzanine debt, commercial mortgage-backed securities financing, or other arrangements that can complicate restructuring negotiations among creditors and make restructuring more difficult. 

Increased lender enforcement. Finally, perhaps as a result of the factors above, the cases featured some lenders that had become more willing to enforce their legal remedies rather than continuing waiting for market conditions to improve.

The Pinnacle Group Bankruptcy: A Commercial Real Estate Restructuring Example

A recent, and relatively successful, example  of how Chapter 11 can facilitate the sale of a distressed commercial real estate portfolio is the Pinnacle Group bankruptcy case in the Southern District of New York. 

Broadway Realty I Co. was the lead debtor of 82 commercial real estate companies under the umbrella of the Pinnacle Group, a major multifamily landlord in New York City. 

Two primary factors led to the bankruptcy filing.

First, the company’s debt reset every five years, and it struggled to service the debt after the most recent reset increased its rates from just under 4% to over 8%. 

Second, recent changes to New York housing regulations limited the company’s ability to increase rents and recover certain costs. 

How the Pinnacle Group Used Chapter 11 to Sell Its Properties

Before the bankruptcy filing, Pinnacle’s mortgage lender initiated foreclosure proceedings and sought to have a receiver appointed.  The debtor and lender started the case in a contentious posture, but began to work more cooperatively over time. 

Together, they arranged an extensive marketing process that ultimately generated $451.3 million from the sale of the entire portfolio of properties. 

Although the sale proceeds were less than the $564 million of first-lien mortgage debt, the transaction likely generated more than the lender would have recovered in a foreclosure by a significant margin.  Moreover, by effecting the sale through a Chapter 11 plan, the parties were able to use a Bankruptcy Code statute that exempts certain bankruptcy transactions from transfer taxes.

The case illustrates how bankruptcy can provide a structured process for selling distressed real estate assets, coordinating creditor interests, and potentially preserving more value than an alternative enforcement strategy.

What Distressed Commercial Real Estate Borrowers Should Consider

As interest rates stay relatively high and lenders become less willing to issue further extension on maturing debt, more CRE companies will likely face distress.

The Pinnacle Group case demonstrates that the Bankruptcy Code offers certain tools to help those companies address their financial distress. Under the right circumstances, it can provide a framework for negotiating with creditors, marketing assets, and implementing a transaction designed to maximize value.

From simple mechanisms like the automatic stay (which pauses foreclosure and other proceedings) to more complex statutes like the transfer tax exemption used in the Pinnacle Group’s case, bankruptcy law provides CRE borrowers with a unique ability to reach solutions with their creditor constituencies and maximize value for the benefit of the estate.     

Mark D. Sherrill is a shareholder in the Chamberlain Hrdlicka's Bankruptcy practice group with extensive experience in bankruptcy, restructuring, and insolvency matters. He advises energy companies, commodity traders, and investment funds on credit and liquidity risk, distressed counterparties, and transactions involving physical and financial energy products. Mark has represented debtors, lenders, creditors, and trustees in significant bankruptcy proceedings across a range of industries, including energy, cryptocurrency, manufacturing, aviation, and retail. His practice also includes distressed asset acquisitions, bankruptcy litigation, and alternative dispute resolution.