Why Non-Performing Loan Sales Aren’t Happening (And What That Means for Buyers)

Old properties, oversupply, and lenders holding the line.

In a recent post, [link here], I pointed out why we’re not seeing a flood of non-performing debt hitting the market. Simply put: lenders have no incentive to switch borrowers unless they absolutely have to. It’s easier to keep extending terms, either until they make their money back or are forced into a write-down.

But let’s say a lender decides they’ve had enough. Imagine a deal in Phoenix (not saying it’s Tides... but not not saying it’s Tides). The lender thinks: “This borrower isn’t cutting it. Let’s find someone better who can actually turn this thing around.”

Here’s how it plays out:

• The lender gets broker opinions of value (BOVs) and puts the property on the market.

• The asset? Built in 1975, 65% occupied, with 30 delinquent tenants who have no credit.

• To sweeten the deal, the lender offers seller carry financing—essentially acting as the lender for the buyer, with terms better than you’d get from a bank or agency.

On paper, it might seem enticing. But here’s the reality buyers face: this deal is a mess.

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The Buy-Side Perspective

As someone on the buy side, I see it all—from low-risk core towers to high-risk, 45-year-old value-add projects. We’re actively in the market for non-performing note sales and lender workouts, but here’s the problem with deals like this, especially in the Sun Belt:

1. Oversupply Isn’t Going Anywhere

Sun Belt markets are drowning in new apartment deliveries. It’s going to take years to absorb this supply, and older Class B and C properties are taking the biggest hit. Even in so-called “insulated” areas, these older properties are deeply impacted by shiny new developments offering better amenities, concessions, and competitive rents.

2. Challenges with Re-Tenanting

So, how do you fill a property like this?

• Drop rents and offer concessions. While this will hurt your cap rate and NOI in the short term, it will help stabilize cash flows.

• Replace delinquent tenants. Easier said than done, even in the Sun Belt. Fully re-tenanting a property can take up to 18 months. On a 3-year hold, that’s a half of your timeline.

3. What’s Your Exit Liquidity?

By the time you’re ready to sell, this property will be pushing 50 years old—basically the end of its useful life. That means your exit cap rate has to be wide, and buyers will likely be limited.

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The Bottom Line: Why Lenders Hold On

So, as a buyer, how do you deal with all this? Simple: you buy it right—at a price that works for you. But here’s the catch: a price that works for you is a TERRIBLE price for the lender.

This is why I don’t think we’ll see many non-performing note sales. Lenders know what buyers like me know. They’ll keep extending terms, holding out until rents recover and the numbers start to look better.

For now, the market for non-performing note sales feels more like a staring contest than a transaction pipeline. What’s your take? Drop your thoughts below—I’d love to hear how you’re navigating the market.

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Why Core Distress Catches My Attention

If you’ve been following my posts, it’s probably no surprise that I’m most interested in core distress. Why? It comes down to three key factors:

1. Liquidity on the Back End
   Newer product tends to have more liquidity when it’s time to sell, which makes it a safer bet compared to older, riskier assets.

2. Lower Repair and Maintenance Costs
   With newer properties, you’re not dealing with 50-year-old plumbing or outdated electrical systems. The lower repair and maintenance costs make these deals much more attractive from a cash flow perspective.

3. Lower Risk, But Rarer
   Core assets are inherently less risky, which is why distress in this segment is much less common. When it does happen, it’s often tied to developers who took on overly high-leverage construction loans or inexperienced operators buying core properties in markets they don’t fully understand.

These situations are few and far between, but when they arise, they present a unique opportunity. With the right price and strategy, core distress can offer a more secure path to returns without some of the operational headaches of older assets.