Banks are extending office loans. Are they also pretending?

livemint.com:

The looming “maturity wall" for commercial real-estate loans coming due has been moved back, but it has also gotten taller. Banks’ commercial real-estate loans are now growing at an accelerating rate. In the first quarter of 2024 they grew sequentially 1.2% on a seasonally adjusted basis, according to Federal Reserve data.

This ended a slowdown in growth last year, which had fallen to 0.3% in the fourth quarter. Investors have been bracing for waves of loan maturities in commercial real estate, which could force a lot of tough choices about whether to restructure or write off mortgages to landlords struggling with occupancy and rental rates. But it didn’t quite play out as expected last year.

MSCI Real Assets noted in a recent report that $214 billion in mortgages slated for maturity in 2023 were, to their knowledge, not refinanced, nor was there a sale of the underlying property. “We believe that these loans have been granted some short-term extension to their maturity date," MSCI Real Assets wrote. For banks, this phenomenon—which critics often dub “extend and pretend"—has added significantly to 2024 maturities.

PGIM Real Estate, part of Prudential Financial’s asset- management business, in a recent report noted that banks’ expected 2024 commercial real-estate maturities rose 35% from previous estimates. So for now, despite a sharp slowdown in new commercial mortgage deals being originated last year, longer-lingering loans and prior obligations to lend to projects as they move forward are sustaining banks’ lending volumes. “Existing commitments keep funding up, and maturing loans have nowhere to go," wrote Autonomous Research analysts in a recent report.