Coronavirus and Real Estate: What Happens to Malls, Offices, Commercial Buildings in 2021 |Bloomberg

"That period of ‘let's just put a Band-Aid on it' is more or less coming to a conclusion," says Wendy Silverstein, a former executive with Vornado Realty Trust and WeWork who recently started a restructuring and advisory firm. "There's a lot of collateral damage that's going to be hanging around for a while."

That damage has the potential to ripple far beyond building owners and their tenants. Commercial property underpins the tax base in many cities across the U.S., and a downturn could pummel local budgets. As loan losses mount, the slump could also put stress on the banking system. The Federal Reserve singled out commercial real estate in its most recent Financial Stability Report as showing particular signs of weakness.

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[But] even as an onslaught of distressed debt looms, there's plenty of capital to chase deals. Private real estate debt funds raised $10.7 billion in the third quarter, the most of any strategy, according to Preqin, while North American real estate funds for all types of investment were sitting on almost $200 billion in dry powder in December.

All that money may limit how far commercial real estate prices fall. Congress's new Covid relief agreement, which allows banks and other lenders until the end of next year to work with delinquent borrowers, also could give businesses more time to stay afloat. And by mid-2021, widespread vaccinations may allow consumers to finally escape from home and return with open wallets to hotels and malls. As Richard Barkham, chief economist for CBRE, put it: "We're entering the dark before the dawn."