Gifford West/SusanGolden 2024
Gifford West with York Kreft are the managing partners of Alpine Tremont LLC, a specialist advisory firm focused on working with lenders to value and exit non-core and non-performing loans. They both were instrumental in the creation of the German NPL market in 2003 and have conducted 100’s of NPL transactions in the US, Germany, the UK, Ireland, Italy, Spain and elsewhere.
Executive Summary
As 2026 begins, we see a common theme emerging in our conversations with European boards and senior lending staff regarding US loan portfolios. The most immediate risks are structural credit risk changes rather than a single cyclical downturn:
- Weakness in the U.S. office sector continues to deepen, now compounded by AI driven reductions in white‑collar employment
- Life science real estate, previously viewed as a defensive niche, is increasingly exposed to funding cuts at major universities and the risk of structural oversupply
- Multinational lending syndicates are becoming harder to manage as divergent regulatory expectations and management cultures delay decisive action
- Key tenant leverage is emerging as a critical risk factor when reviewing loan portfolios to identify long term risks especially in Core and Super Core assets
- US Government policy changes have emerged as the greatest “known unknown.”
For non‑U.S. boards in particular, these themes highlight the need for earlier loss anticipation, sharper differentiation of asset quality/type, and greater scrutiny of governance risk embedded in syndicated exposures. Institutions that act early, through reassessment, selective de‑risking, and targeted hedging, will retain strategic flexibility. Those that delay have a higher probability of being forced into value‑destructive outcomes later in the cycle.
Five Structural Credit Themes Shaping 2026
1. The U.S. Office Sector: A Structural, Not Cyclical, Challenge
The U.S. office market remains under severe pressure. Since the COVID period, office utilization and rents have fallen sharply, with many assets experiencing valuation declines of 40–60 percent. While some stabilization appeared in 2025, especially in the amenity rich “A” sector, as markets adjusted to hybrid work, a new structural headwind has emerged.
Artificial intelligence is now reshaping white‑collar employment. Professional services firms, financial institutions, technology companies, and corporate headquarters, the core users of office space, are reassessing not only where work is performed, but how many staff are required. Unlike the work‑from‑home transition, AI introduces the risk of sustained reductions in demand for office space even in a stable macroeconomic environment.
For non‑U.S. banks with U.S. exposure, this increases the likelihood that recovery assumptions embedded in extensions and restructurings, even those executed in 2025, will prove optimistic. The risk is less a near‑term wave of defaults and more a prolonged capital entrapment in assets facing secular demand erosion and limited liquidity.
2. Life Science Real Estate: Funding Risk and Oversupply
Life Science Real Estate refers to highly specialized commercial assets designed to support biomedical, pharmaceutical, and related research and development activities. These properties are typically lab intensive, capital-heavy, and operationally complex, with tenant credit quality closely linked to research funding cycles, stage of scientific development, and access to institutional or private capital. As a result, performance and valuation are driven less by conventional office dynamics and more by tenant maturity, funding durability, and the asset’s ability to remain relevant as research needs evolve.
Life science real estate has historically benefited from proximity to leading universities and strong research funding. That foundation is weakening. Cuts to funding at major U.S. universities and broader pressure on medical research budgets are flowing through to tenants, particularly those reliant on early‑stage, grant‑driven research.
While defaults remain limited, the more immediate concern is oversupply. Significant development activity over recent years has added highly specialized lab space that is costly to convert and slow to lease. Even modest reductions in tenant demand can therefore have an outsized impact on cash flow and valuations.
For boards, the critical issue is differentiation. Assets anchored by later‑stage, well‑capitalized tenants face a very different risk profile from those dependent on early‑stage research closely tied to universities most exposed to funding cuts.
3. Toxic Lending Syndicates: Governance as a Credit Risk
An increasingly important but underappreciated risk lies in the structure of lending syndicates. Syndicates incorporating US, European, and Asian banks are encountering growing difficulty reaching timely consensus as regulatory expectations diverge across countries.
Some national regulators are pressing banks to accelerate loss recognition and exit stressed exposures quickly, while others permit forbearance and longer resolution timelines. Differences in management culture and decision‑making frameworks further complicate negotiations. The result is delayed action, erosion of collateral value, and heightened legal and reputational risk.
In this environment, syndicate composition can materially affect outcomes. Governance risk, rather than borrower performance alone, is becoming a key driver of losses.
4. Key Tenant Risk: From Key Asset to Possible Land Mine
In the pre-COVID lending environment, a cornerstone tenant (or a 100% occupant) with a solid credit rating was considered a benefit when assessing a loan as long as the delta between loan maturity and first break clause was over 18 months. The logic was that 18 months was adequate for the promoter to find another tenant if the dominant tenant was at risk of leaving. These characteristics added additional comfort to “Core” and “Super Core” loans.
In the current market, the dynamic has reversed for two reasons. First, with 20-30% vacancy rates common in many CBD markets, the assumption that the space can be re-let in an acceptable time frame has now been proven false.
Second, with the demand for super amenity rich property being the only sector which has strong demand, the cost of tenant improvements has grown well beyond the economics factored into traditional break clauses. To be in the running to win the high paying tenant that can take 50% of a building, landlords (and consequently their bankers) have to be willing to write substantial checks for the necessary improvements.
For boards, this means making sure that the safest part of their CRE portfolio is truly safe. A risk analysis of replacing key tenants supporting large loans is a necessity to identify early those loans that could be a problem in 12 to 18 months.
5. US Policy Volatility: Dreading the Morning Paper
As recently experienced by the US credit card industry, the project finance industry (e.g., wind, renewable energy), commercial real estate (e.g., Washington DC post DOGE, life sciences (see above)), and elsewhere, the US administration continues to demonstrate a willingness for sudden, unilateral changes in policy. For some European lenders, the question is becoming increasingly whether they can justify lending in this market when seemingly arbitrary policy/political action can cause sudden swings in collateral value dependent on type and location.
For non-U.S. institutions, this introduces an additional layer of uncertainty that is difficult to capture in traditional stress testing frameworks. Policy-related impacts may be non-linear and location or asset type specific, and therefore disproportionately affect assets suddenly in narrow niche markets (e.g., wind projects).
Supervisory expectations increasingly emphasize that management bodies explicitly consider policy exposure risks to sensitive sectors/geographies when assessing sector strategy, underwriting standards, and risk appetite for long-dated exposures.
Board Action Agenda
Boards should respond to these themes with a focused and cautionary action plan.
First, boards should instruct risk management to reassess U.S. office exposure with explicit consideration of AI‑driven tenant risk. Reviews should address tenant industry mix, susceptibility to workforce reduction, and whether business plans assume a return to pre‑AI demand for space.
Second, for life science lending, boards should require clear visibility into where tenants sit in the research and commercialization cycle and how dependent they are on universities likely to be impacted by funding cuts. Concentrations in early‑stage, grant‑dependent tenants should be treated with heightened caution.
Third, boards should mandate the grading of lending syndicates based on composition and decision‑making effectiveness. Syndicates spanning multiple jurisdictions with limited ability to act quickly under stress should be classified as higher‑risk exposures.
Fourth, a new analysis of US CRE portfolios needs to be put into place that may not already exist. How exposed is the bank to tenant replacement risk on loans that are likely currently performing?
Fifth, European boards have to make the difficult decision whether the fundamental risk/reward equation for sectors of US lending are attractive given the sector’s exposure to ‘hot’ and/or populist policy topics. Credit cards and project finance have been blind sided, what’s next?
In aggregate, for the highest‑risk loans across these sectors, boards should consider proactive de‑risking. This may include, at a strategic level, where feasible, hedging strategies such as Synthetic Risk Transfer transactions to reduce downside exposure before market stress removes optionality. At a tactical level, it includes secondary sales of targeted loans to reduce composite risk within the five sub-portfolios described.