(3) The Maturity Wall Behind the Road Map:

 

San Diego's Civic Center and the National Commercial Real Estate Reckoning

Over $4 trillion in commercial real estate loans mature between 2025 and 2029, peaking at $1.26 trillion in 2027. Office is the epicenter of distress. Of CMBS office loans maturing through end of 2026, 83.7 percent are delinquent and 92.7 percent are in special servicing. San Diego's Civic Center road map does not exist in a local vacuum — it is a microcosm of a national pattern in which municipal governments are being positioned, consciously or not, as the backstop buyers for a commercial real estate sector that private capital has abandoned.

Part Three of a Series — San Diego — April 16, 2026

Bottom Line Up Front: 

The San Diego Civic Center revitalization road map, released April 14, 2026, proposes that the City relocate its offices into vacant downtown commercial space, using public credit to occupy buildings that private tenants will not lease at prevailing terms. This proposal arrives at the precise moment when the national commercial real estate sector is confronting its largest refinancing crisis since the Great Financial Crisis. More than $4 trillion in CRE loans mature between 2025 and 2029. In 2025 alone, $957 billion came due — nearly triple the 20-year average — and only 50 to 55 percent were paid off. The rest were extended under "extend and pretend" arrangements that have pushed a wall of distressed debt into the 2026–2028 window. The office sector is the epicenter: national vacancy near 20 percent, downtown San Diego at 35.8 percent, and CMBS office loan delinquency at 83.7 percent for pre-2026 maturities. Bank of America reported a $133 million increase in commercial charge-offs in Q2 2025, driven specifically by office-property resolutions. Wells Fargo carries $2 billion in reserves against office CRE loans at an 11.1 percent reserve ratio. JPMorgan Chase's own research notes that regional banks carry 4.4 times more CRE exposure than large banks and that cumulative CMBS office liquidations could reach 20 percent over the next decade. Over 900 U.S. banks carry CRE exposure exceeding 300 percent of total equity — the regulatory threshold for excessive concentration. This is not 2007–08: the contagion mechanism is different, the regulatory framework is stronger, and large-bank diversification provides a buffer. But the pattern of slow-motion capital destruction — what Japan experienced in the 1990s — is structurally present. In this context, the San Diego road map is not merely a local civic proposal. It is a case study in how distressed commercial real estate seeks a solvent public buyer when private capital will not perform the function.

The maturity wall

The commercial real estate lending cycle that began during the ultra-low-interest-rate era of 2015–2021 is now unwinding. Borrowers who locked in financing at 3 to 4 percent are confronting a refinancing environment where rates run 6 to 7 percent or higher. Property values in the office sector have fallen roughly 30 percent from their 2022 peak nationally. The arithmetic is straightforward: a building financed at 3.5 percent with 90 percent occupancy could cover its debt service; the same building at 6.5 percent with 65 percent occupancy cannot. The equity is impaired or gone. The only question is how losses are distributed — among borrowers, lenders, and, potentially, the public.

According to S&P Global's Commercial Prospecting database analysis (November 2024), approximately $950 billion in CRE mortgages matured in 2024. That figure rose to an estimated $957 billion in 2025 — nearly three times the 20-year historical average, according to the Kaplan Group's state-of-the-market analysis. S&P Global projects the volume will peak at approximately $1.26 trillion in 2027. Over the full five-year window from 2025 to 2029, more than $4 trillion in CRE debt requires refinancing or repayment.

The industry's response has been what analysts euphemistically call "extend and pretend." Rather than forcing borrowers into foreclosure or recognizing losses, lenders have modified or extended loan terms — often by 12 to 24 months — to defer the day of reckoning. Among modified CMBS loans, roughly 30 percent received maturity-date extensions in 2023 and 2024 combined, according to Baker Tilly/Moss Adams analysis. The Kaplan Group estimates that only 50 to 55 percent of the $957 billion in loans maturing in 2025 were actually paid off. The remainder has been pushed into the 2026–2028 window, compounding the refinancing pressure in those years.

This is not hypothetical future risk. It is unfolding now. Distressed CRE asset volume reached $116 billion in Q1 2025, a 31 percent increase from a year earlier. Rolling 12-month distressed multifamily sales alone reached $13.8 billion by mid-2025, up from $1.1 billion in early 2020. The CMBS delinquency rate has risen to 7.29 percent — nearly six times the traditional bank CRE loan delinquency rate of 1.29 percent.

Office: the epicenter

Not all commercial real estate sectors are equally distressed. Industrial properties are stable (96.8 percent occupancy). Multifamily shows resilience (0.5 percent CMBS delinquency for 2026 maturities). Retail, despite years of negative sentiment, benefits from high occupancy and limited new supply.

Office is in a category of its own. National vacancy hovers near 20 percent. In major metros, the figures are worse: San Francisco has seen values fall 35 percent since 2019; Austin, Seattle, and San Diego are deeply impaired. Downtown San Diego's 35.8 percent vacancy rate is nearly three times the countywide average. Not a single office building broke ground anywhere in San Diego County in 2025 — the first time that has happened in 27 years.

The CMBS data tells the deepest story. According to CoStar analysis, $21.3 billion in CMBS office loan balances are coming due through the end of 2026. Among office loans that matured before 2026 and still carry outstanding balances, 83.7 percent are delinquent and 92.7 percent are in special servicing — the CMBS equivalent of intensive care. Phil Mobley, CoStar's national director of U.S. office analytics, has noted that the office CMBS delinquency rate has been "trending steadily upward since early 2023 to an all-time high."

JPMorgan Chase's own research arm projects that cumulative CMBS office liquidations will reach approximately 20 percent over the next decade, with cumulative losses of approximately 8.5 percent. The firm describes this as "comparable to percentages seen in the sector in the post-GFC years" — a comparison to the 2008–2012 period that the bank itself considers instructive.

How exposed are the big banks?

The largest U.S. banks — JPMorgan Chase, Bank of America, Wells Fargo, Citigroup — are not facing existential CRE risk in the manner that Lehman Brothers or Bear Stearns faced residential MBS risk in 2008. Their CRE loan books represent 6 to 21 percent of total loans, they maintain diversified revenue streams, and post-2008 regulatory requirements (Basel III capital rules, stress testing, enhanced liquidity standards) provide buffers that did not exist sixteen years ago.

That said, the exposure is real, the losses are accumulating, and the largest banks are actively managing their CRE portfolios in ways that reflect genuine stress:

Bank of America reported a $133 million increase in commercial charge-offs in Q2 2025, to $466 million total, "driven primarily by sales and resolutions of commercial real-estate office properties," according to the bank's earnings statement. BofA has described itself as "cautiously re-engaging" in CRE lending from "a position of strength" — language that simultaneously signals confidence and acknowledges prior retreat. The bank's average commercial loan balance stood at $602.2 billion in Q1 2025. While CRE is a fraction of that book, the office segment is the segment producing the losses.

Wells Fargo carries approximately $2 billion in reserves (allowance for credit losses) against its office CRE loan book, at a reserve ratio of 7.9 percent overall and 11.1 percent within its Corporate and Investment Banking division. In Q2 2025, Wells reduced its office ACL by $105 million, reflecting charge-offs already taken and what CFO Mike Santomassimo described as stabilizing valuations. Wells Fargo's CRE loan book contracted 1.1 percent year-over-year — a deliberate reduction in exposure. The bank has also been dialing back its position as one of the largest U.S. office-sector lenders.

JPMorgan Chase has been more guarded in its public commentary. Its Private Bank research team warned as early as April 2023 that regional banks carry 4.4 times more CRE exposure than large banks, with CRE loans constituting 28.7 percent of assets at small banks versus 6.5 percent at large banks. Chase holds CRE loans on its balance sheet (it is, for example, the nation's largest multifamily lender), but its overall diversification and capital position place it among the least exposed of the systemically important banks. Its research, however, does not minimize the systemic risk: the 20-percent cumulative liquidation projection for CMBS office is their number, not a bear-case outlier.

The real concentration risk sits with regional and community banks. According to the Florida Atlantic University Banking Initiative's CRE exposure screener, 59 of the 158 largest U.S. banks (those with more than $10 billion in assets) had total CRE exposure exceeding 300 percent of total equity capital as of Q3 2025 — the regulatory threshold that supervisors consider "excessive" and that correlates with elevated failure risk. Across all approximately 4,500 U.S. banks, more than 900 exceeded the 300-percent threshold, according to Agora's 2026 CRE lending analysis. Flagstar Financial (formerly New York Community Bancorp), Zions Bancorporation, Synovus Financial, and Valley National Bancorp are among the most frequently cited as at-risk. NYCB reported a $2.7 billion loss in late 2023 directly attributable to CRE, leading to a credit downgrade and emergency recapitalization.

Is this 2007–08?

The comparison is understandable but structurally imprecise. The mechanisms differ in important ways.

In 2007–08, the contagion vector was opacity. Residential mortgage-backed securities were bundled into collateralized debt obligations whose risk was obscured by rating-agency failures, rehypothecation chains, and counterparty interconnections that nobody — including the banks themselves — fully understood. When the underlying mortgages defaulted, the losses cascaded unpredictably through a financial system that could not determine who held what. The result was a liquidity crisis that froze interbank lending and required $700 billion in TARP funding plus trillions in Federal Reserve emergency facilities to arrest.

The current CRE distress is different in three critical respects:

First, the exposure is more visible. CRE loans are held primarily on bank balance sheets and in CMBS trusts that report monthly to servicers and rating agencies. The "who holds what" question that paralyzed markets in 2008 is answerable today. CMBS special servicers are processing workouts in real time. Banks are reporting charge-offs and reserve builds in quarterly earnings. The opacity that defined 2008 is largely absent.

Second, the regulatory framework is materially stronger. Post-Dodd-Frank capital requirements, annual stress tests, and the Fed's enhanced prudential standards mean that the largest banks hold substantially more loss-absorbing capital than they did in 2007. The average Tier 1 capital ratio for large U.S. banks now exceeds 13 percent, compared to single digits in the pre-crisis era. The system can absorb a greater quantum of losses before solvency is threatened.

Third, the contagion pathway is slower. CRE loans are predominantly five- and ten-year balloon instruments. They mature on staggered schedules, and the "extend and pretend" strategy, whatever its long-term costs, prevents the kind of sudden synchronous default that produces bank runs. This is a slow-motion workout, not a flash crash.

But the comparison has genuine force in one dimension: the distributional mechanism. In 2007–08, the ultimate cost of the crisis was borne disproportionately by homeowners (through foreclosure and equity destruction), taxpayers (through bailouts), and public services (through recession-driven budget cuts). The lenders and securitizers who originated the bad loans were, in many cases, made substantially whole through government intervention. The asymmetry of risk and reward — private gains on the upside, socialized losses on the downside — was the defining political legacy of the crisis.

The current CRE cycle is producing the same asymmetry, in slower motion. Developers and lenders captured the returns during the 2015–2021 boom. Now that occupancy has collapsed and values have fallen, the losses need somewhere to go. Private equity is buying distressed assets at steep discounts — which means the original equity investors and their lenders absorb the write-down. But in cases where a governmental entity steps in as the buyer or tenant — as the San Diego road map proposes — the loss-absorption function shifts to the public balance sheet.

The Japan scenario

If the 2007–08 comparison is structurally imprecise, a different historical parallel may be more apt. Japan's commercial real estate bubble peaked in 1991. When it collapsed, Japanese banks carried impaired CRE assets on their books at fictional valuations for over a decade, a practice enabled by regulatory forbearance and accounting flexibility. The result was not a single catastrophic crash but a "lost decade" of stagnant growth, restricted lending, and zombie institutions that consumed capital without generating productive economic activity.

The U.S. "extend and pretend" strategy has obvious parallels. By extending impaired office loans rather than recognizing losses, lenders preserve their capital ratios on paper while restricting new lending capacity in practice. The capital that is tied up in impaired office loans is capital that cannot fund new housing construction, small-business lending, or municipal infrastructure. The macro cost is not a crisis — it is a quiet drag on economic dynamism that compounds over years.

The Congressional Research Service, in a September 2024 report titled "Commercial Real Estate and the Banking Sector," noted that while "it is not clear that a collapse in CRE markets alone would cause a recession," the banking system holds an estimated $2.7 trillion in outstanding CRE-backed loans, and "regional downturns in subsectors of CRE markets risk local or regional banking stress." The CRS further noted that Congress "may be concerned about constituencies that are impacted directly by CRE stress" — a polite way of saying that when regional banks are impaired, the communities they serve lose access to credit.

San Diego as case study

Downtown San Diego is a textbook example of the dynamics described above. The market experienced a speculative building and acquisition boom in the 2018–2022 period, funded by debt originated at historically low rates:

Property	Developer / Owner	Investment	Current Status
Campus at Horton	Stockdale Capital → AllianceBernstein (lender)	$175M purchase + $125M+ renovation	Foreclosed Sept. 2025 for $130M credit bid. 772,000 sf office largely vacant.
IQHQ RaDD	IQHQ Inc.	$230M land + hundreds of millions in construction	1.7M sf delivered; 93.7% vacancy as of mid-2025. One tenant (JCVI, 50,000 sf) announced.
Wells Fargo Building	Prebys Foundation (purchased 2025)	$40M acquisition	24-story tower; candidate for City Hall relocation.
101 Ash Street	City of San Diego (via Cisterra settlement)	$86M purchase + $115M est. remediation	Vacant since 2019. Planned for ~250 affordable housing units.
Civic Center Plaza	City of San Diego (via Cisterra settlement)	$46M purchase	Occupied by city staff; significant deferred maintenance.

The combined capital destruction in downtown San Diego office alone — measuring the gap between total investment and current recoverable value — runs into the hundreds of millions of dollars. Stockdale's investors lost most of their equity. IQHQ's investors face massive impairment. The lenders behind these projects — whether AllianceBernstein on the Campus at Horton, or whoever holds IQHQ's construction debt — need either occupancy or a sale to recover value.

Into this distressed environment, the Civic Center road map proposes inserting the City of San Diego as a long-term anchor tenant and development partner, using JPA-issued bonds backed by the city's full taxing authority. The financial function this serves is clear: it creates occupancy in buildings that private tenants have rejected, establishes a price floor in a market that has not found its bottom, provides a creditworthy revenue stream that enables lenders to mark their books at recoverable values, and does so using public credit rather than private equity.

The question is not whether relocating City Hall makes operational sense. It probably does. The question is whether the timing, the structure, and the counterparties are designed to benefit taxpayers — or to provide a municipal backstop for a commercial real estate workout that private capital markets have declined to fund.

The backstop-buyer pattern

San Diego is not unique. Across the country, municipal and state governments are being presented with "opportunities" to occupy distressed office space at "historically favorable" prices. The language is always the same: once-in-a-generation opportunity, buyer's market, cost savings versus renovation, catalytic development potential. And in each case, the underlying dynamic is identical: a distressed property needs a creditworthy occupant, and the government is the only entity whose credit the market will accept.

This pattern has an internal logic. Governments do need office space. Older government buildings do need renovation or replacement. And distressed-market pricing does offer lower acquisition costs than new construction. But the pattern also has a systemic function that its proponents rarely acknowledge: it transfers the losses from private speculative investment onto public balance sheets, where they are amortized over decades through tax-supported debt service. The developers and lenders who created the excess supply are made partially whole. The taxpayers who occupy the buildings pay for them through bond service. And the cycle resets.

The risk is not that any single transaction triggers a crisis. The risk is that the accumulation of these transactions — across hundreds of municipalities, each one rational in isolation — creates a category of public-sector CRE exposure that has never been systematically measured. No one is aggregating the total municipal bonded debt being issued to acquire distressed commercial office space. No one is tracking the cumulative taxpayer exposure. And no one is asking whether the "savings" being projected in each individual case will survive the next interest-rate cycle, the next recession, or the next shift in how office work is organized.

What the numbers actually say

The national CRE maturity wall, the bank-exposure data, and San Diego's local market dynamics converge on a single conclusion: the risks are real but manageable for the financial system as a whole, while being potentially severe for specific institutions, specific markets, and specific taxpayers who absorb public-sector CRE acquisitions at the wrong price or the wrong time.

For Bank of America and JPMorgan Chase specifically: their diversified portfolios, robust capital positions, and active management of CRE exposure (including selling loan pools to private credit firms like Blackstone, as Atlantic Union recently did in a $2 billion transaction) place them in a category of "manageable stress, not existential threat." The large banks are already repricing their books. The losses are real — BofA's $466 million in Q2 2025 commercial charge-offs, Wells Fargo's $2 billion in office reserves — but they are absorbable within current capital structures.

The systemic risk resides downstream: in the 900-plus banks with CRE exposure above 300 percent of equity; in the CMBS special-servicing pipeline where 92.7 percent of pre-2026 office maturities are already in distress; in the regional credit markets where impaired office loans restrict lending capacity for housing, small business, and municipal infrastructure; and in the municipalities that are being offered "once-in-a-generation" deals to absorb distressed properties using public bonding authority.

San Diego's Civic Center road map is one such deal. It may be a good deal — if structured with genuine competitive procurement, voter approval, independent oversight, and clawback provisions, as proposed in Part Two of this series. Or it may be another iteration of the pattern that San Diegans know too well from 101 Ash Street: private actors capture the upside; the public absorbs the downside; and the losses are amortized over decades, invisible in any single year's budget but corrosive to the city's capacity to maintain roads, staff libraries, and fund the services its residents actually need.

The maturity wall will peak in 2027. The City Council's decision on City Hall relocation is targeted for late 2026. The timing is not coincidental.

Sources

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