Overdue loans are up by 80 percent at Massachusetts’ biggest banks, an analysis of regulatory filings shows. It’s a sign of the dilemmas many of the state’s lenders are facing. iStock illustration

Bad real estate loans are piling up at Massachusetts’ banks, and more set to come due this year are expected to leave local bankers with tough decisions.

A Banker & Tradesman analysis of regulatory filings shows that nine of the state’s largest, locally-based banks ended 2025 with $552.12 million in real estate loans that were either past due or marked as in “nonaccrual” status in federal regulatory filings, meaning that borrowers were at least 90 days behind in making payments.

That’s an 80 percent increase over the fourth quarter of 2021 when accounting for loans held by the banks later acquired by the nine lenders in the analysis.

This drag on banks’ balance sheets reflects the larger trouble in both the local and national commercial real estate markets.

Troubled Market, Troubled Loans

Commercial mortgage-backed security delinquencies increased nationwide from 6.30 percent to 7.14 percent in February 2026 on a year-over-year basis, according to real estate data firm Trepp.

Trepp calculates its CMBS delinquency rate by dividing the delinquent balance by the total balance of CMBS loans outstanding.

Office delinquencies rose nationwide from 9.78 percent to 11.20 percent from February 2025 to February 2026, and office delinquencies reached an all-time high of 12.34 percent.

The commercial market in Greater Boston is unhealthy, said Jeff Myers, research director at the Boston office of commercial brokerage Colliers. The life sciences sector is the most stressed, followed by office, he said.

The former had nearly 20 million square feet of vacant space across Greater Boston as of the end of 2025, according to Myers. That’s in part due to all the speculative lab space delivered in the last few years – after the regional biotech boom turned into a bust in late 2022.

“When you’re dealing with such a large amount of vacant space, it’s a tenant’s market, so rents have been coming down,” he said. “Concession packages have been in tenants’ favor, and there’s a lot of opportunity for tenants that are in the market. However, even though it’s a tenant’s market, a part of the reason there’s so many vacant places is because demand hasn’t really been growing over the past few quarters.”

Similarly, the office sector has struggled with much lower demand for space since the COVID-19 pandemic.

“If you’re in the city of Boston or Cambridge or the suburbs, you’re pretty elevated in all those different places,” Myers said. “In Boston, class B [office space], especially, has been with high vacancies, and I think that the recovery there could take a little bit longer.”

What Can a Bank Do?

Banks have various options to choose from when it comes to dealing with troubled loans.

The most drastic option is potentially selling the loan for a loss, or completely writing it off in what’s known as a “charge-off,” but banks can also choose to adjust terms or increase its debt-service coverage.

Being proactive in a market where distressed CRE assets are on the rise is important according to Fidelity Bank President Sean O’Connell. By working with borrowers when warning signs first appear, lenders try to protect themselves from significant loss.

“The benefits are huge with having the conversations early and often,” he said in an interview. “This way nobody’s in a situation where there’s surprises. When there’s surprises in these larger assets, there can be substantial loss. That’s why it’s really important to be proactive and having a lot of conversations about how to best manage and move forward on these assets.”

Additionally, a common tactic is called “extend and pretend.” Banks with loans that they would rather not address – because they hope a deal can be worked out with a borrower, or market conditions might improve – end up deciding to extend the loan and deal with it at a different time.

“So inevitably, they’re going to be certain properties that are going to be drawing the short end of the stick when it comes to that recovery,” Myers said. “For those properties, there’s an increased likelihood that lenders will indeed be forced to make the decision to actually write off some of these loans and get them moving out of their systems.”

No One’s Immune

Not even the state’s smaller banks are immune to the commercial real estate market’s impact on their loan books.

Leominster-based, $1.38 billion-asset Fidelity Bank reported $33.14 million in the same time period, FDIC data shows.

“Some of the challenges in the commercial real estate market have been well documented, and Fidelity isn’t alone in having elevated non-performing loans,” Fidelity Bank’s O’Connell said in a statement. “We continue to proactively identify those loans where market changes or changed borrower circumstances have created challenges requiring risk rating downgrades and are actively working to reduce these exposures.”

According to FDIC data, the rate of charge-offs has been steadily increasing at many local banks. Holyoke-based PeoplesBank has seen yearly charge-off volumes increase by 397.5 percent since 2021. In the same time frame, Boston-based Eastern Bank has seen charge-off volumes increase by 675 percent and 355.6 percent for Buffalo, New York-based M&T Bank, which has a major presence in Massachusetts.

“We’re almost six years out from COVID, and if you think of that as the starting point of office ailments, most of those loans have either already been addressed, will be addressed or have had some correction to them,” South Shore Bank Chief Commercial Banking Officer Stephen DiPrete said.

Avidia Bank told a court last year it stands to lose $17 million on a $25 million mortgage for a life science tower in Medford that never broke ground. Its sued the developer, Rise Construction Management, and auctioned the site for $5.5 million. Image courtesy of Cube 3 and Jacobs

More Banks Shedding Troubled Properties

But for the banks who now have to face the reality of loans coming to term and taking action, the impact will be felt.

“It could be really detrimental to an institution depending on the size and the exposure that is out there,” Fidelity Bank’s O’Connell said. “You’re seeing some of these assets come on the market that are matured and trying to figure out what’s the best strategy to handle them moving forward, which is why it’s important to do business with people that you know. This way you can work through these challenging times together.”

Commercial properties with loans coming to term now face an elevated and volatile interest rate environment. This makes it harder for deals to pencil that might have refinanced a troubled property in prior years. It also creates a larger quandary for bankers looking to project how taking action on a loan will impact their institution.

“The beginning of ’26, the outlook was definitely different than it is right now, especially with everything that’s going on in the world,” O’Connell said. “There’s a lot of uncertainty, and it’s really hard to predict what direction we’re going to be going in and what kind of rate environment is going to be at the end of ’26 or even for ’27.”

More lenders appear to be taking action against bad commercial real estate loans. Lenders of all types filed 147 foreclosure auction notices against commercial properties in Massachusetts in 2025, according to data compiled by The Warren Group, publisher of Banker & Tradesman. That same figure was 124 for all of 2024, and 28 in 2022.

That pace could rise further in 2026. Lenders have already filed foreclosure auction notices against 45 commercial properties in the first two months of this year, according to The Warren Group. That’s already more than the 40 filed in the entire first quarter of 2025, and the 22 auction notices filed in the first quarter of 2024.

Sam Lattof

Alternative Lenders to the Rescue?

For institutions looking to get bad loans off the books, non-traditional lenders could enter into the picture as a source of help.

According to the latest data from CBRE, alternative lenders beat out banks, life insurance companies and commercial mortgage-backed securities lenders to close the largest volume of non-agency commercial real estate loans in the fourth quarter of 2025: 40 percent to banks’ 35 percent.

“There may be some opportunistic funds coming in to acquire these properties,” South Shore Bank’s DiPrete said. “They may just be sales that the bank agrees to and it comes off the books. So that’s a possibility we see some more opportunistic funds. I think this might be a low point of entry.”

Local real estate giant The Davis Companies, for example, raised $1 billion to pursue distressed assets in its Davis Investment Ventures Fund V.

When it comes to properties that are trading, institutional investors are also getting involved at a less frequent rate, according to Colliers’ Myers. With elevated interest rates, private has the potential to be more competitive compared to traditional lenders such as banks, he said.

“A lot of the office buildings, for instance, in Boston, that are being bought are being purchased by local owners. Investors that may have a different interest rate horizon than the traditional institutional investor would,” he said. “I wonder if that continues, where that type of investor may say, ‘Hey, the pricing is affordable. It’s better than it was X years ago. I can buy it based on that.’ They’re not necessarily having to go through the same underwriting hoops internally that some of the more traditional institutional buyers.”

Banker & Tradesman staff writer James Sanna contributed to this report.