Is the loan performing, or not? Is the borrower capable of servicing the loan until maturity without selling any of the real estate?
For commercial real estate, the answer to one or both of those questions is usually 'no', so then the loan is worth what the collateral is worth (minus liquidation and carrying costs).
ahhh, that is the fun part. Banks are not allowed to value real estate unless there is a performing loan. So any ‘non performing loan’ is valued at ZERO because the real estate cannot be liquidated TODAY.
It’s utter nonsense. It would be like saying that your cattle are worthless today because you can’t get to the auction until tomorrow. It’s an inherent bias against any non-liquid assets.