Small Balance CRE Meltdown Ahead – Do You Have the Right Workout Partner?

There’s a storm quietly brewing – and it’s not the billion-dollar portfolios everyone’s focused on.

It’s a more insidious crisis unfolding beneath the surface – one that threatens to destabilize a large swath of the U.S. commercial real estate market.

I’m talking about the small balance CRE sector – those $10 million-and-under deals – that are quietly slipping into distress at an alarming rate. These assets are the backbone of American business districts and local economies, yet they’re increasingly overleveraged, undercollateralized, and on the brink of default.

And while many lenders are hoping to ride it out, hope is not a strategy.

The Cost of Doing Nothing

Too often, we see stakeholders fall into the trap of “extend and pretend.” They delay tough decisions, hoping the market will rebound or the borrower will figure it out. But in distressed real estate, time rarely heals – it compounds risk.

Waiting too long to take action leads to:

• Erosion of collateral value
• Increased borrower deception or strategic default
• Diminished recovery prospects
• Legal exposure and reputational risk

“If you’re a private lender or investor holding this paper, I’ve got news for you: the turbulence you feel is only the beginning.”

Why Small Balance CRE Is Cracking First

Let’s be clear – this isn’t a future problem.

It’s already happening.

Insurance costs are up double-digits across most states. Borrowers are struggling to refinance in a high-rate environment. Properties that once penciled out are now bleeding cash.

Layer in widespread underwriting failures, unrealistic pro forma assumptions, and the flood of “NONA” loans (No Obligation, No Appraisal), and you’ve got a distressed debt scenario brewing at scale.

The so-called “maturity wall” of commercial debt isn’t on the horizon – it’s here.

And the most vulnerable players in the system?

Private lenders and non-bank originators holding small balance loans – many of whom lack the in-house teams or protocols to deal with mounting defaults.

Under the Radar, Overleveraged, and Headed for Trouble

What we’re seeing right now is a perfect storm:

• Skyrocketing insurance costs
• Borrower fraud slipping through weak underwriting
• The rise of “NONA” loans—No Obligation, No Appraisal
• A looming “maturity wall” set to unleash a tsunami of debt
• A wave of “extend and pretend” strategies that only delay the inevitable

Again this isn’t speculation – it’s happening.

And private lenders are more exposed than ever.

Unlike traditional banks, many don’t have the capital reserves, infrastructure, or specialized teams to respond prudently when loans start to sour.

What’s Need Now: Real Solutions – Conservative Yet Creative

This is exactly why I created First Lien Resolutions – your Special Assets Group for hire – trusted partner for private lenders, family offices, and institutional investors delivering integrated workout solutions specifically designed to protect capital and restore performance in distressed real estate debt scenarios.

We don’t just offer advice – we execute – combining real-world experience with tactical precision when it matters most.

First Lien delivers integrated resolutions across the full asset life cycle, helping you:

• Stabilize underperforming assets
• Navigate complex borrower negotiations
• Protect capital at risk
• Restore loan performance or maximize recovery
• Avoid litigation where possible – and win when necessary

A Wake-Up Call for Private Lenders

The real pain in this market won’t come from institutional investors – it’ll come from small business owners who are overleveraged and unprepared for a downturn. That means your borrowers, your properties, your capital.

“If you’re holding CRE debt and hoping it “just works out,” you’re gambling at the edge of a cliff.”

What you need is a workout partner who knows how to navigate complexity and preserve value.

That’s what we do at First Lien Resolutions and we do it well.

We’re not in the business of quick fixes or short-term optics. First Lien Resolutions is boots-on-the-ground, sleeves-rolled-up expertise – exactly what you need when facing distress in a fragmented, high-risk environment.

If you’re a lender holding paper on overleveraged, underperforming commercial properties and you’re not sure what to do next – you’re not alone.

But doing nothing is the riskiest move of all.

If you’re serious about protecting your portfolio and navigating the distressed debt landscape ahead, you’ll want to listen to the latest Debt Doctor episode where Ron McMahan, CEO of Foundation Specialty Finance, and I unpack how this crisis is unfolding and what lenders need to do.

Subscribe to Debt Doctor on Apple, Spotify, or your favorite podcast platform and/or YouTube. I also encourage you to share this post with fellow investors who are as passionate about transforming distressed mortgage debt into profitable opportunities as you are.

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As always, I’d love to hear your thoughts, feedback, or questions about this episode or the industry.

Feel free to reach out directly to podcast@billbymel.com if there’s a specific topic you’d like me to cover in upcoming episodes.

Catch you in the next episode,

 – Bill Bymel, Debt Doctor

First Lien Capital is your investment partner delivering security and strong returns while making real impact, and First Lien Resolutions is your Special Assets Group for hire delivering integrated resolutions to protect capital and restore performance to distressed real estate debt scenarios.

Schedule a consultation with Bill to ELEVATE or REVIVE your portfolio today.

Stay connected with Bill Bymel: https://linktr.ee/billbymel