Refinancing Pressure Remains a Focus in 2026

A substantial volume of commercial real estate debt continues to work its way toward maturity. According to the Mortgage Bankers Association's 2026 Commercial Real Estate Survey of Loan Maturity Volumes, approximately $875 billion in commercial and multifamily mortgage debt was scheduled to mature this year, representing 17% of the roughly $5 trillion in outstanding commercial mortgage balances measured at year-end 2025.

At the same time, lending activity has remained active. CBRE reported that the number of commercial real estate loans increased 11% year over year in the second quarter of 2026, while average loan sizes increased 5%. Average commercial loan-to-value ratios, however, declined from 60.8% to 59.6%, showing that improved lending activity does not necessarily translate into greater leverage.

The distinction is important for sponsors approaching maturity. Capital may be available, but a property still needs to support the proceeds required to refinance its existing balance under today's lender underwriting standards.

Why a Performing Property Can Still Face a Refinancing Shortfall

A property can remain current on its existing loan and still have difficulty obtaining enough replacement financing at maturity. Trepp's October 2026 analysis of private-label CMBS maturities highlighted this issue, reporting approximately $4.70 billion in hard maturities during the month, with more than a quarter of that balance carrying current debt yields below 6%.

Commercial real estate refinancing proceeds are generally constrained by some combination of debt service coverage ratio, debt yield, and loan-to-value ratio. DSCR measures a property's ability to cover required debt payments from its net operating income. Debt yield compares property-level NOI with the loan amount, while LTV measures the proposed loan relative to the property's value. Depending on the lender and transaction, any one of these metrics can ultimately determine proceeds.

Consider a hypothetical property generating $2 million of annual NOI with a $25 million existing loan. If a lender requires a 9% debt yield, the property's cash flow would support approximately $22.2 million of debt under that constraint. At a 10% debt yield, proceeds would decline to $20 million, potentially leaving a meaningful gap that the sponsor would need to address.

That example demonstrates why refinancing risk should not be measured only by whether a property is currently making its debt payments. The more important question is whether current and projected cash flow will support enough new financing when the existing loan matures.

Maintaining a Current Financial Model Throughout Ownership

The model used to acquire or develop a property is based on assumptions about operating performance, leasing, expenses, capital expenditures, financing, and timing. Once the transaction closes, actual performance will inevitably differ from at least some of those assumptions, which is why the model should continue evolving throughout ownership.

Effective commercial real estate asset management incorporates monthly actuals, updated rent rolls, occupancy, leasing activity, operating expenses, capital expenditures, and revised forecasts into a current financial model. Comparing actual performance with the original underwriting helps sponsors understand whether the business plan remains on track and whether changes in performance could affect future financing.

This becomes particularly important when preparing for refinancing. Changes in rental income, insurance costs, property taxes, capital expenditures, concessions, or occupancy can alter NOI and therefore affect how much debt the property can support. Updating the model throughout the hold period allows sponsors to identify those changes before they reach the lender underwriting process.

The refinancing analysis should also account for more than the future loan amount. Sponsors should consider the existing payoff balance, financing costs, lender reserves, potential prepayment costs, remaining capital expenditures, and any additional equity that may be required. Incorporating these items into the same model creates a clearer view of the full sources and uses of a refinancing.

Preparing for a Potential Refinancing Shortfall

If projected refinancing proceeds fall below the existing debt balance, sponsors generally have several options to evaluate. Depending on the transaction, those may include contributing additional equity, pursuing an extension with the existing lender, introducing preferred equity or another permitted layer of capital, seeking a different debt structure, recapitalizing the investment, or considering a sale.

Each solution has a different impact on investor returns and the remaining business plan. Additional equity increases invested capital, while preferred equity can alter the distribution waterfall and reduce cash flow available to common equity. An extension may create more time to execute the business plan but can also introduce fees, paydowns, additional reserves, or modified lender requirements.

The value of identifying a shortfall early is optionality. Sponsors with visibility into the issue months before maturity have more time to compare lenders, evaluate alternative structures, raise capital, complete operational improvements, or adjust the timing of the refinancing. Discovering the same shortfall shortly before maturity can significantly narrow those choices.

Asset management therefore plays an important role in financing strategy. The financial model should help sponsors understand not only how the property is performing today, but also how that performance affects future capital needs and investment returns.

Connecting Asset Management With Capital Markets

Commercial real estate asset management and capital markets are often viewed as separate functions, but refinancing demonstrates why they should remain closely connected. Asset management provides the operating data and projections needed to understand the property's financial position, while capital markets provides lender feedback, debt sizing, financing structures, and current market terms.

When both functions operate from the same updated financial model, sponsors can evaluate potential refinancing structures against the property's actual performance. Proposed loan proceeds, interest rates, amortization, reserves, and other terms can be incorporated directly into the model to determine how each option affects cash flow, required equity, distributions, IRR, and equity multiple.

That connection also makes it easier to compare alternatives. If a proposed refinancing does not produce enough proceeds or materially changes projected returns, the sponsor can model another lender, additional equity, a different capital structure, or a revised business plan using consistent assumptions.

In a market where lending remains available but underwriting standards and proceeds can vary significantly by asset, lender, and business plan, maintaining current financial analysis gives sponsors a better foundation for capital decisions. Refinancing should be the next step in an ongoing financial process, not a new analysis that begins a few months before maturity.

Commercial Real Estate Asset Management Support From Foss

Foss Real Estate Partners provides commercial real estate asset management, financial modeling, and capital markets support as an embedded extension of sponsors' deal teams. By maintaining current property-level models, incorporating actual performance, and evaluating refinancing and investment scenarios throughout ownership, Foss helps sponsors understand how their business plans are evolving and what those changes mean for future capital decisions.

Whether preparing for a refinancing, evaluating a recapitalization, or reviewing the performance of an existing investment, Foss provides experienced financial and capital markets resources that can stay with the transaction through its next stage.