15% of Maturing CRE Loans Too Hard to Refinance

Of the $100B in CRE loans maturing by 2026, up to 15% may face refinancing challenges.

Jordan B. & Han-Gwon Lung
December 10, 2024

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Good morning. Of the $100B in CRE loans maturing by 2026, up to 15% may face refinancing challenges due to high interest rates, with office and retail properties most at risk amid tighter lending and valuation declines.

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DEBT DILEMMA

Refinancing Risks Loom Large for 15% of Maturing CRE Loans

Commercial property borrowers with loans approaching maturity in the short term should prepare to refinance in a high-rate environment—but it won’t be easy.

The cliff’s edge: $100B in CRE loans will mature by 2026, with loans from 2014–2016 being the most vulnerable. According to the Federal Reserve, 15% of those loans may fail to qualify for refinancing due to insufficient debt service coverage ratios under high-interest rate conditions. Even in a favorable 5.5% rate environment, Trepp projects that 17% of maturing office loans may fail to meet refi requirements.

Sector by sector: Office and retail sectors currently show the highest refinancing risk, particularly as rates remain elevated. Of the $100B in maturing loans, retail properties make up the biggest piece of the pie ($32B), followed by offices ($31B), lodging ($13B), multifamily ($6B), and industrial ($3B).

Zooming out: According to the Mortgage Bankers Association, the 30-year fixed mortgage rate fell to 6.69% this November. However, according to Trepp, rate cuts do not immediately translate into lower CRE financing costs due to lagging treasury yields. Borrowers refinancing today must contend with higher borrowing costs, tightened credit standards, and potential valuation drops.

➥ THE TAKEAWAY

Looking ahead: CRE owners must 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.

TOGETHER WITH S&P GLOBAL

See the Big Picture for Commercial Real Estate in 2025

The market's mettle will be tested as many borrowers seek to refinance loans maturing in the next year.

Interest rates are unlikely to fall enough to reach the same levels as when the loans were originated, resulting in a higher debt service for borrowers, if credit is available at all.

Concerns about the office real estate sector remain high, particularly for older buildings where few employees have returned to work in person.

Read the big picture report for 2025 on CRE, Weathering the Storm, to see how banks and insurers with outsized exposure to CRE will likely perform.

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✍️ Editor’s Picks

Sales surge: Office and multifamily sales soared in October, while industrial, retail, and hospitality deals struggled amid inventory shortages and economic cautions.
Top picks: Residential real estate offers equity growth and tax benefits despite high mortgage rates, with San Francisco condos, REITs, and strategic STRs presenting standout opportunities.
CRE comeback: Chad Tredway returned to J.P. Morgan Asset Management, integrating Trio Investment Group's $250M portfolio into his new leadership role as head of real estate Americas.

🏘️ MULTIFAMILY

Case closed: RealPage announced the DOJ has ended its criminal investigation into its rent-setting software, reinforcing the company’s defense against ongoing antitrust allegations.
Refi boost: PGIM Real Estate provided a $73.6M refinancing loan for Crimson Partners' 356-unit Makers Rise apartment complex in Herndon, VA, supporting lease-up efforts through its core-plus.
Luxury bet: Fort Lauderdale's $2B Bahia Mar makeover aims to attract wealthy buyers with upscale condos and a St. Regis hotel, but can the city’s luxury market absorb more high-end units?
Rare deal: North Hollywood’s rent-controlled Marquee apartments sold for $44M—more than 2x their 2014 price—highlighting investor confidence in rent-stabilized properties despite market challenges.
Chelsea vision: Victor Sigoura's Legion Investment Group plans a 20-story, 75-unit luxury condo building at West Chelsea's last undeveloped waterfront parcel, reviving the stalled site.
Airport accord: Phoenix and Tempe resolved a legal dispute, clearing the way for 1.6K luxury apartments near Sky Harbor Airport, with noise insulation requirements ensuring compliance with aviation agreements.

🏭 Industrial

Logical growth: Faropoint is set to develop the Joyce Kilmer Logistics Center, a 195.4 KSF Class A NJ industrial project as the demand for smaller warehouses under 100 KSF grows.
Big pharma boom: Eli Lilly is investing $3B to expand its manufacturing facility in Pleasant Prairie, WI, using advanced automation to boost injectable medicine production.
Industrial stake: INDUS Realty Trust (INDT) acquired a majority interest in a 4.3 MSF industrial portfolio in Charlotte and Charleston for $575M, enhancing its logistics footprint.
Orlando deal: Northpark Commerce Center, a three-building industrial park near Orlando, sold for $15.2M, a 69% premium from its $9M sale in 2018.

🏬 RETAIL

Activist push: Barington Capital and Thor Equities urged Macy's (M) to unlock $9B in real estate value by forming a property subsidiary and spinning off high-end brands like Bloomingdale’s.
Mall struggles: The $505M loan for Natick Mall, New England's largest, entered special servicing after maturing, as Brookfield negotiates an extension amid tenant retention challenges.
Loan in limbo: The $505M Natick Mall loan has entered special servicing due to imminent monetary default, with owner Brookfield negotiating an extension after the loan matured in November.
Refi boost: Related Companies secured $67.1M in refinancing from Ares Commercial Real Estate (ARES), raising debt on its 181.5 KSF CityPlace building in West Palm Beach to $200M.
Hell's Kitchen score: Silverstein Properties signed Lincoln Market to a 20-year lease for 36 KSF at River Place in Hell's Kitchen, making it one of Manhattan's largest ground-floor supermarkets.

🏢 OFFICE

Loan sale: Wells Fargo (WFC) has listed the $120M defaulted loan on Westbrook Partners' 444 Madison Avenue, offering bidders a potential path to property ownership via deed-in-lieu of foreclosure.
Office recovery: SL Green (SLG), NYC’s biggest office landlord, is seeing signs of recovery, with flagship properties like One Vanderbilt fully leased at premium rents despite pandemic challenges.
HQ shuffle: As corporations keep relocating HQs for tax incentives and workforce access, cities like St. Petersburg aim to lure major companies, while debates persist on the true economic benefits.
Legal relocation: Riker Danzig, one of New Jersey's largest law firms, will move its HQs from downtown Morristown to a 20-acre corporate campus in Madison in 2025.

🏨 HOSPITALITY

Tight lending: US hotel construction lending remains constrained despite lower interest rates and demand growth, as high costs, cautious lenders, and discounted assets complicate new projects.

📈 CHART OF THE DAY

New York's zoning amendments aim to enable 82,000 new homes over 15 years, bolstered by a $5 billion investment in affordable housing, tenant protections, and infrastructure upgrades to combat rising housing costs.