- 15% of maturing CRE loans may fail to qualify for refinancing due to insufficient debt service coverage ratios under high-interest rate conditions.
- $100B in CRE loans will mature over the next two years, with loans from 2014–2016 being the most vulnerable.
- Office and retail sectors show the highest refinancing risk, particularly as rates remain elevated.
The Federal Reserve’s recent interest rate cuts have started to create optimism in the residential lending market, as reported by GlobeSt.
However, commercial real estate borrowers may face a more complex refinancing environment.
By The Numbers
According to the Mortgage Bankers Association, the 30-year fixed mortgage rate fell to 6.69% this November.
However, according to Trepp, federal rate cuts do not immediately translate into lower CRE financing costs due to lagging treasury yields and heightened fiscal uncertainties.
Borrowers with loans maturing in the next two years may encounter stricter loan-to-value (LTV) and DSCR requirements, compounded by higher interest rates now averaging between 5–7%.
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$100B Debt Wave
Approximately $100B in CRE loans are set to mature, including:
- Retail properties: $32B
- Office properties: $31B
- Lodging: $13B
- Multifamily: $6B
- Industrial, other: $3B
Trepp projects that even in a favorable 5.5% rate environment, 17% of maturing office loans may fail to meet refinancing requirements due to slipping revenues, rising vacancies, and/or higher operating costs.
Implications for Borrowers
Loans that originated during 2014–2016 are often locked in historically low rates around 4%. Borrowers refinancing today must contend with higher borrowing costs, tightened credit standards, and potential valuation drops, placing great financial strain on property owners.
- Properties with strong NOI: Better positioned for refinancing.
- Properties with revenue challenges: May need to consider raising rents, reducing operating costs, or selling assets to reduce debt loads.
Looking Ahead
CRE owners will have to proactively evaluate their portfolios and prepare for tightened lending conditions.
While the Fed’s ongoing rate adjustments offer long-term optimism, higher financing costs in the near term will test the resilience of both properties and borrowers nationwide.
