Sector Distress: Real Estate, Consumer, Energy, Industrials

Introduction

Roughly 80% of 2025 large Chapter 11 activity concentrated in four sectors: commercial real estate, consumer goods and retail, energy (particularly the solar subsector), and industrials. Each sector hit distress for distinct reasons, and understanding the specific structural drivers in each is what separates a generic interview answer from one that demonstrates real engagement with the market.

This article walks through each of the four sectors, covering:

The data points draw from CRED iQ's CMBS tracking, Trepp delinquency reports, S&P Global maturity wall analysis, Cornerstone Research industry breakdowns, Rystad Energy oil and gas data, and contemporaneous case coverage from Bloomberg Law and Retail Dive.

Commercial real estate carried the heaviest weight of 2025 distress, accounting for roughly 30% of large Chapter 11 activity by case count. The CMBS market provides the cleanest data window into the sector. The overall CMBS distress rate (loans that are either delinquent or specially serviced) climbed to 11.70% in December 2025, its third consecutive monthly increase, according to CRED iQ. The breakdown by property type tells the more granular story:

Office distress: 12.34% delinquency and structural demand reset

Office distress reached an all-time high. Office CMBS delinquency rose to 12.34% in January 2026, exceeding the prior peak set during the financial crisis. The driver is structural rather than cyclical. A meaningful fraction of pre-2020 office demand has not returned, and Class B and Class C buildings in major metro central business districts (Chicago Loop, San Francisco Financial District, Manhattan Midtown) face vacancy rates of 20% or higher. The lender response has shifted from short-term forbearance to active workout, with foreclosure sales, deed-in-lieu transactions, and Section 363 sales of ownership entities accelerating through 2025.

Multifamily and the floating-rate refinancing trap

Multifamily, the property type that looked safest at the start of 2025, ran into floating-rate problems. Many large multifamily acquisitions during the 2021-2022 zero-rate window were financed with bridge loans pricing at SOFR plus 300 to 400 basis points. As floor rates lifted, debt service on those loans tripled. By late 2025, multifamily CMBS delinquency hit 7.12%, more than double early-2024 levels. Several major multifamily syndicators (typically smaller private real estate sponsors rather than public REITs) entered restructuring or filed Chapter 11.

Aggregate CRE distress: $116B and Manhattan-led concentration

The aggregate CRE distress figure climbed to roughly $116 billion by March 2025, up 23% year-over-year and the highest reading since the financial crisis. CRE foreclosures had risen 117% in 2024 versus 2023 (per ATTOM March 2024 data) and remained elevated through 2025. More than 200 distressed office assets changed hands in 2025, roughly double 2023's volume. Sales linked to foreclosures and bankruptcies topped $5 billion as sellers accepted significant write-downs. Manhattan led national distress concentration; Chicago ranked second with approximately $4 billion in distressed office assets.

Worldwide Plaza: the marquee 2025 office workout

The Worldwide Plaza foreclosure auction is the marquee 2025 office distress example. The 49-story tower at 825 Eighth Avenue, owned by SL Green, RXR, and New York REIT Liquidating, carried $940 million in senior CMBS loans plus $260 million in mezzanine financing from Goldman Sachs and Deutsche Bank. After law firm Cravath, Swaine & Moore vacated its 617,000 square foot lease in April 2024, occupancy collapsed to 63% by March 2025. The UCC foreclosure auction was scheduled for January 15, 2026. Other large NYC office buildings that defaulted in 2025 followed similar patterns: anchor tenant departure, occupancy collapse below the 65-70% breakeven threshold, debt service shortfall, and lender takeover. Several distressed office buildings (1 Whitehall Street is one) are now being repositioned for residential conversion, a structural shift that was almost unheard of pre-2023.

How CRE distress shaped Wall Street desk staffing

The CRE distress wave shaped Wall Street restructuring desk staffing. Houlihan Lokey expanded its real estate restructuring practice in 2024 in anticipation of the wave that ultimately arrived. PJT Partners, Lazard, and Eastdil Secured each invested in real estate-specific distressed mandates. The pattern continued through 2025, with multiple firms adding office and multifamily specialists in expectation of a multi-year CRE workout cycle.

Consumer goods and retail accounted for roughly 25% of 2025 large Chapter 11 activity. The sector entered 2025 with three pre-existing pressures: e-commerce displacement of brick-and-mortar share, margin compression from sustained input cost inflation, and the maturity of leveraged buyout debt issued during the 2018-2021 retail acquisition wave. The March 2025 tariff expansion added a fourth and final layer.

The 2025 store closure tally set a record. Forever 21 closed all 354 U.S. stores by April 30. Joann liquidated 533 stores by mid-2025. Big Lots, originally trying a going-concern emergence with Nexus Capital as stalking horse, ultimately announced 682 location closures after the Nexus deal collapsed. Rite Aid wound down 1,200 locations through its second bankruptcy. Carter's closed 150 stores citing tariffs directly, noting the administration's tariffs added substantially to the $110 million in duties it had paid in fiscal 2024.

The tariff impact on retail and consumer goods was concrete and quantifiable. The Trump administration imposed levies of 25% to 60% on Chinese goods, steel, aluminum, and autos beginning in March 2025, creating substantial input cost increases for retailers and manufacturers. Reports indicated input costs spiked 20% to 30% for many manufacturers. Companies with high import exposure, particularly fast fashion (Forever 21), home goods (At Home), and discount retailers (Big Lots) faced the steepest margin compression.

The structural challenges that pre-dated the tariff shock are worth understanding. E-commerce share of U.S. retail reached 18% by year-end 2025 from 14% in 2020, with apparel and home goods seeing even higher digital penetration. The fixed-cost burden of operating large physical store footprints, combined with leases negotiated at peak rents during the 2017-2020 mall expansion, made the unit economics of legacy chains progressively harder. The tariff shock simply accelerated a wave that was already building.

Restructuring desks responded to the consumer wave with sector-specific bench investment. Houlihan Lokey, the dominant consumer-and-retail Rx advisor, added junior bankers in early 2025 in anticipation of the wave. Berkeley Research Group and AlixPartners, the two leading turnaround consulting firms in retail, expanded their interim CRO and CFO benches through the year. The mandates flowed accordingly.

Energy accounted for roughly 15-18% of 2025 large Chapter 11 activity, with the distress concentrated almost entirely in the solar subsector rather than oil and gas. The pattern is striking because it inverts the typical energy distress cycle. The traditional energy bankruptcy wave (2014-2016, 2020) hit oil and gas exploration and production companies through commodity price collapse. The 2025 wave hit solar through a combination of policy uncertainty, financing cost increases, and Chinese price competition.

Solar bankruptcies cumulative count crossed 100 companies by year-end 2025. The 2025 marquee cases included:

The solar industry's distress had three primary drivers. First, residential solar installations declined 31% in 2024 as rising interest rates compressed the IRRs on long-duration leases. Second, the Trump administration's January 2025 changes to renewable energy policy created uncertainty around the 48E investment tax credit and 25D residential solar tax credit, scuttling planned project pipelines. Third, Chinese solar manufacturers (a 30% local Chinese supply share by mid-2025) drove module prices down by 40% to 50%, further compressing developer economics.

48E and 25D Tax Credits

Section 48E of the Internal Revenue Code provides a clean electricity investment tax credit for utility-scale and commercial solar projects. Section 25D provides a residential solar tax credit. Both credits were structured under the Inflation Reduction Act with long phaseout schedules, but the 2025 policy uncertainty over whether the credits would be modified or eliminated retroactively contributed materially to the wave of solar bankruptcies.

Oil and gas, by contrast, ran below long-term averages for distress. Rystad Energy projected approximately 22 E&P bankruptcies for 2025, in line with normalized levels. The oil and gas distress that did occur was concentrated in shale producers with higher cost structures and weak hedging programs, rather than the broad-based wave that the solar subsector experienced.

Industrials and manufacturing made up the fourth major sector cluster, accounting for roughly 15-20% of 2025 large Chapter 11 activity. Cornerstone Research data showed manufacturing carrying the highest share of bankruptcy filings across all industries, with 67% of manufacturing mega bankruptcies citing the regulatory, legal, and policy landscape as a key driver of financial distress, particularly tariffs and clean-energy policy.

Eastern Herald reported industrials led 2025 carnage with 98 bankruptcies, erasing over 70,000 manufacturing jobs as factories shuttered from Michigan to Texas. The sector's distress had multiple layers:

The Wolfspeed case is a useful illustration of how industrial distress combined multiple drivers. The company had committed approximately $6.5 billion to its broader U.S. silicon carbide expansion (anchored by the $5 billion John Palmour Manufacturing Center in Chatham County, North Carolina), premised on continued strong EV demand and government subsidy support. EV growth slowed sharply in 2024 (Tesla deliveries flat, Ford and GM EV losses widening). Chinese SiC capacity ramped up to roughly 30% of global supply by mid-2025, driving price competition. The CHIPS Act subsidy that had been part of Wolfspeed's funding plan came under review by the new administration. The combination forced the Chapter 11 filing, which ultimately wiped out existing equity and consolidated the company under its lender group.

The remaining 20% of 2025 large Chapter 11 activity concentrated in two sectors with different dynamics from the major four. Each is worth at least passing familiarity for interview prep.

Healthcare distress affected hospital systems, physician practice management groups, and skilled nursing operators. The drivers were sector-specific rather than general macro: reimbursement pressure from both Medicare and commercial payers, post-COVID volume shifts that reduced elective procedure revenue, and labor cost inflation that ran ahead of reimbursement increases. Several large physician practice management groups owned by private equity sponsors entered distress through 2025, with the typical pattern involving covenant breaches, lender forbearance, and either an out-of-court recapitalization or a Chapter 11 sale. The largest single healthcare Rx mandates in 2025 went to Lazard (which has the deepest healthcare bench among Rx firms) and Houlihan Lokey.

Technology, media, and telecom (TMT) distress was more idiosyncratic, concentrated in cable and wireline telecommunications, regional broadcast media, and a handful of high-leverage software companies. Cumulus Media, the radio broadcaster, filed Chapter 11 on March 5, 2026, becoming 2026's eighth billion-dollar Chapter 11 filing and a preview of broader media-sector pressure. The TMT distress profile is structurally different from the four major sectors because the underlying businesses often retain meaningful subscriber or contract value even when the capital structure becomes unsustainable.

A useful counterpoint to the four major distress sectors is the relative absence of financial services from the 2025 large Chapter 11 docket. Despite continuing concerns through 2023-2024 about regional bank stability and commercial real estate loan exposure on bank balance sheets, no major bank filed Chapter 11 in 2025. The 2023 wave (Silicon Valley Bank, Signature Bank, First Republic) was resolved primarily through FDIC receivership rather than Chapter 11, reflecting the bank-resolution regime's structural separation from the bankruptcy code.

Several smaller specialty finance companies (consumer lending, BDC affiliates, mortgage servicers) entered distress, but the volume was modest relative to other sectors. The pattern suggests that the regulatory and resolution framework for financial institutions effectively diverts most financial sector distress away from Chapter 11 into specialized resolution channels (FDIC receivership for banks, SIPC liquidation for broker-dealers, conservatorship for housing GSEs). Restructuring desks staffed for financial sector mandates accordingly run thinner benches than for the major four sectors.

The four sectors did not move independently in 2025. Several cross-sector dynamics shaped the cycle:

First, the maturity wall hit each sector simultaneously. The $1.2 trillion combined leveraged loan and high-yield bond maturity wall through 2027-2029 includes meaningful concentration in each of the four sectors. CRE has its own $1.26 trillion maturity peak in 2027. Consumer LBO debt maturing in 2025-2027 layered on top of the broader maturity wall. Energy and industrial leveraged loans similarly reset at higher coupons.

Second, the tariff shock crossed sector boundaries. Consumer goods felt the input cost effect directly. Industrials felt it through both inputs and customer demand. Energy felt it through equipment costs (steel and aluminum tariffs increased solar farm construction costs by 8% to 12%). Real estate felt indirect effects through reduced retail tenant cash flow and weaker office demand from struggling tenants.

Third, the policy uncertainty layer hit specific sub-sectors particularly hard. Renewable energy lost the predictable subsidy framework. Healthcare sub-sectors lost predictability around Medicaid reimbursement. International trade sectors lost predictability around tariff durability. The unpredictability premium in capital markets translated into wider spreads and lower issuance volumes for affected sectors.

The 2025 sector distress mix sets up 2026 in specific ways. Commercial real estate distress will continue and likely accelerate, with the 2027 maturity wall peak still in front of the market and office vacancies showing no clear sign of structural recovery. Consumer goods distress depends heavily on whether tariff policy stabilizes; if tariffs persist, the wave continues, while a meaningful tariff rollback would relieve pressure on the most exposed retailers. Energy distress in solar likely continues until policy uncertainty resolves; oil and gas remain at normalized distress levels absent a commodity shock. Industrials distress depends on whether manufacturing employment stabilizes or continues to decline.

For interview prep, the practical takeaway is that the 2025 sector mix is durable rather than transient. A candidate interviewing in mid-to-late 2026 should expect the same four sectors to dominate the active mandate flow. Knowing the structural drivers in each (CRE maturity wall, retail tariff exposure, solar policy uncertainty, industrial cost competitiveness) gives the candidate a way to discuss not just what happened but what is likely to happen next, which is a more sophisticated frame than purely backward-looking case knowledge. The next article in this section drills into the LMT and out-of-court tape that ran in parallel to these sector waves.