The 2027 Debt Maturity Wall: What Borrowers Need to Know Before Refinancing

For commercial real estate owners, the next 12 to 18 months may be an important window for planning. S&P Global Market Intelligence estimates that approximately $1.26 trillion of U.S. commercial real estate (CRE) mortgages will mature in 2027, the peak of the current maturity cycle. That follows approximately $950 billion worth of maturities in 2024 and nearly $1 trillion in 2025.

The size of that maturity wall does not mean every borrower will have difficulty refinancing. It does mean, however, that borrowers with 2027 maturities should not assume that refinancing will be a routine extension of their existing financing. Starting early can give owners time to understand how a new lender may view the property, identify potential gaps, and address issues before the maturity date becomes urgent.

A Refinance Is Not Simply an Extension of an Existing Loan

Refinancing, either with a current lender or a new lender, generally puts the borrower and property through a new credit analysis. Bank regulators specifically identify the borrower’s refinancing needs, the performance of the underlying asset, the timing of the maturity, current market liquidity, and the cost of refinancing as factors lenders should consider. Banks are also expected to assess whether a borrower can satisfy current underwriting standards for comparable loans at prevailing interest rates. That means an existing loan’s successful payment history is important, but it is not necessarily determinative. A new lender will evaluate the transaction based on its own underwriting standards and current market conditions. The legal documentation also may change. A refinancing, even with an existing lender, may involve a new credit agreement, security documents, guaranties, and other closing documents, rather than simply carrying forward the existing loan documents.

Existing Loan Terms May Change Significantly

Borrowers should pay particular attention to the terms that will govern the new financing. Depending on the lender and transaction, a new loan may impose different financial covenants, reporting requirements, collateral protections, guaranty requirements, or other conditions.

Federal banking guidance identifies financial performance covenants, reporting requirements, collateral requirements, and periodic financial reporting as components of commercial credit agreements. CRE underwriting standards may also address loan-to-value limits, debt-service coverage, hard equity, interest reserves, pre-leasing, guarantor support, and minimum loan covenants.

The current interest-rate and lending environment can make these differences particularly important. S&P Global reported that the average interest rate on CRE loans originated between January through August 2024 was 6.2%, compared with 4.3% on the maturing mortgages in its analysis. Banks may tighten standards in response to economic conditions while continuing to extend commercial credit. Accordingly, borrowers should evaluate not only the proposed interest rate but also the entire package of lender protections and operating requirements.

Valuation and Current Operations Will Drive Underwriting

A refinancing lender will focus on the property and its current ability to support the proposed debt. Federal banking guidance identifies property value, borrower capacity, equity invested, collateral, and credit enhancements as relevant underwriting considerations. For income-producing properties, regulators also identify factors such as current and projected vacancy, lease terms, rental rates, and operating expenses.

Updated valuation can therefore be critical. Federal CRE underwriting standards call for a current appraisal of the real property securing a loan, including an “as is” market value and an income approach.

Cash flow is equally important. The debt-service coverage ratio, or DSCR, measures the ability of the property or borrower to service debt. DSCR is calculated by dividing net operating income by annual debt service, and the appropriate ratio depends in part on the stability and volatility of cash flow. For property owners, that means current operating performance, lease rollover, tenant concentration, and other factors affecting future cash flow should be examined well before a refinancing request is submitted. A strong historical payment record does not eliminate the need to demonstrate that the property and borrower can support the new financing under current underwriting standards.

Additional Equity May Be Required

One of the most important questions for a borrower is whether the existing loan balance can be fully refinanced with new debt.

If the property’s current value is lower than when the existing loan was originated, or if the lender’s underwriting produces a lower permissible loan amount, the new loan may not be sufficient to pay off the existing debt. The resulting shortfall can create an equity requirement at maturity.

This risk is particularly relevant where properties were financed during periods of lower interest rates or higher valuations. Borrowers should therefore calculate the potential refinancing proceeds well in advance, rather than waiting for a lender’s final term sheet to discover an equity gap.

Begin Planning Early

For a loan maturing in 2027, the planning process should begin well before the contractual maturity date. We recommend starting the discussion with your existing lender or prospective lenders at least 120 days prior to your loan maturity.

Start by reviewing the existing loan documents and identifying the maturity date, extension rights, prepayment provisions, collateral requirements, guaranties, and any restrictions that could affect a refinancing or alternative transaction. It is also useful to understand what information a prospective lender will need, and whether there are outstanding property, financial, or documentation issues that could affect underwriting.

Legal and other advisors should be engaged early enough to evaluate the existing financing, identify potential refinancing issues, and help the borrower understand available alternatives.

Negotiations

While refinancing gives the lenders a chance to add requirements to a loan, it is also an opportunity for the borrower to renegotiate as well. Attentive borrowers will be reviewing their existing deal terms and trying to improve where possible. In most instances, incumbent lenders do not want their borrowers to leave the bank. Banks know that maturities are approaching, and they also know it is the time when their customers will be shopping around for the best deal. This means the borrower may have some leverage to improve deal terms, reduce or eliminate a guaranty, or pull out some equity. 

The 2027 CRE maturity wall is large, but careful preparation will help borrowers meet the moment. Borrowers who begin early will have more time to understand the likely refinancing economics, identify any potential equity requirement, evaluate changes to loan terms, and address issues before the maturity date approaches. For many borrowers, that preparation may be the difference between approaching a refinancing as a deadline and approaching it as a transaction that can be thoughtfully negotiated.

Preparing for a refinance in 2027? Reach out to Kelly Rice or another member of LP’s Financial Services & Restructuring Group.