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High Borrowing Costs Create Refinancing Hurdles for CRE Owners
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 driven by elevated borrowing costs and stricter lending requirements.
Today’s issue is brought to you by S&P Global Market Intelligence. See the big picture for commercial real estate in 2025.
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Market Snapshot
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DEBT DILEMMA
Rising Rates Put 15% of Maturing CRE Loans at Refinancing Risk
Around 15% of maturing CRE loans could struggle to refinance due to higher borrowing costs and tighter lending standards, per Trepp.
Not so much relief: While recent Federal Reserve rate cuts have brightened the residential lending outlook—MBA data shows mortgage applications rose 2.8% in late November—CRE loans are seeing little relief. Treasury yields, which drive commercial loan rates, remain elevated due to fiscal uncertainties, limiting the impact of rate reductions for CRE borrowers.
Source: Trepp
Refinancing wave: Over the next two years, $100 billion in CRE loans will mature. Many were issued between 2014 and 2016 when interest rates were historically low, averaging in the mid-4% range. Refinancing today means facing rates in the mid-5% to mid-7% range, compounded by stricter credit standards. These conditions are putting a squeeze on liquidity and property valuations across the market.
Sector by sector: Office and retail sectors are at the greatest risk, with retail properties accounting for $32 billion of maturing loans and office properties close behind at $31 billion. Lodging, multifamily, and industrial loans make up smaller portions of the refinancing challenge but are not immune to these pressures.
Zoom in: The office sector is particularly vulnerable, with 17% of maturing office loans failing to meet refinancing standards at a 5.5% rate. Rising vacancies, declining revenue, and escalating operating costs further exacerbate the difficulty, often leaving properties unable to satisfy debt service coverage ratio (DSCR) requirements.
➥ THE TAKEAWAY
Why it matters: Rising refinancing hurdles could strain liquidity and valuations across CRE. Well-performing properties may adapt, but distressed assets face defaults or forced sales, reshaping the market as borrowers and lenders adjust to higher debt costs.
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.
*Please see the advertising disclosure at the bottom of this newsletter.
✍️ 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.
Lending boost: Oaktree Capital has launched Formida Capital with $250M to provide loans and support regional banks amid tightened liquidity in the commercial real estate sector.
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
Opportunity awaits: Boardwalk Wealth unveils Jefferson Reserve Phase II, a 96-unit garden-style project offering immediate cash flow, tax benefits, and Opportunity Zone deferrals in a 14-16 month timeline. (sponsored)
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.
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📈 CHART OF THE DAY
Chart 1: Conduit Delinquency Rates by Property Type / Source: Moody’s
November saw the CMBS conduit loan delinquency rate rise to 7.4%, up 38 bps, with significant increases in office, multifamily, and hotel sectors marking eight consecutive months of escalation.
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