Industry overview

A massive wall of commercial real estate debt is coming due now and over the next two years, and today’s high interest rates will make refinancing it far more expensive. For some owners, that is a serious problem; for others, it is an opening. Trepp estimates that about $733.2 billion in commercial real estate loans will mature in 2027, on top of roughly $800 billion estimated to come due this year, much of it at the lower rates available earlier in the year.

“Elevated interest rates have made it increasingly difficult to refinance maturing commercial real estate debt, with little relief in sight,” said Lonnie Hendry, chief product officer at Trepp. As lenders pull back on loan extensions and modifications, he expects more realized distress and greater loan losses, and with them, chances for investors to buy assets at attractive valuations.

For years, lenders gave borrowers more time in the hope that rates would fall. That era is ending. “If I had debt, I’d be petrified,” said Richard LeFrak, executive chairman of the LeFrak Organization, on a recent Property Play podcast. “The extend and pretend party is over, and banks are being more aggressive about either selling off the loans or trying to dispose of the assets in one way or the other.”

Office and multifamily properties face the biggest reckoning. The office delinquency rate in commercial mortgage-backed securities hit 12.16% in September, according to Trepp, although the office recovery is now accelerating in both occupancy and valuations. Multifamily is still in distress, working through a recent oversupply and weaker rents. Many borrowers refinanced apartment buildings in 2021 and 2022, when rates were very low, and would now have to refinance at about twice their original rates.

“We have the largest amount of multifamily debt that we’ve ever seen before, period, that is coming due, and one of the main points is that most of that debt was on floating rate mortgages,” said Ari Rastegar, founder and CEO of Rastegar Capital. With rates higher and rents lower, properties are worth less, so borrowers must put in more cash and lenders demand more equity. Rastegar gave the example of a two-year bridge loan with two one-year extensions originated at around 4%: with rates up 525 basis points, it now sits at 9%. Borrowers who cannot generate enough cash flow to cover the higher debt service become candidates for distressed sales, and Rastegar said his firm is preparing for a massive buying opportunity, starting a global roadshow to tell retail and institutional investors to be ready to buy.

Some borrowers are instead taking cheaper, shorter-term financing, which only pushes the problem a few years down the road. Multifamily financing is traditionally meant to stay in place for ten years, and the hope is that property fundamentals improve and rates fall, but neither is guaranteed. Jason Morgan, co-CEO of Morgan Properties, one of the nation’s largest apartment owners and managers, said fundamentals are starting to improve, which should offset some of the distress, “but not nearly to the level that what someone would need from a 2021 and 2022 valuation perspective.” Transaction volume has come to a standstill, he said, and deals not under contract are falling out or being repriced by as much as about 10%. Morgan agreed the maturing debt will create bargain pricing for buyers, but warned the wave has not arrived yet: “It still hasn’t been a tidal wave of new opportunities because sellers haven’t, you know, come to that reality, which is going to take place over the next few months.”

Industry overview based on CNBC

What it means for investors

For investors, the maturing debt wall is a two-sided story: near-term pain for lenders and owners, and a growing pipeline of discounted assets for buyers with cash. The $733.2 billion due in 2027, plus roughly $800 billion this year, means distress will not be a one-quarter event but a multi-year supply of repriced properties, especially in multifamily, where floating-rate bridge debt from 2021 and 2022 is resetting from around 4% to around 9%. Funds like Rastegar Capital are already raising capital and touring investors, a sign that competition for the best distressed deals will build before prices fully reset. The catch, as Morgan Properties notes, is timing: sellers have not yet accepted the new reality, transaction volume has stalled, and deals are repricing by up to about 10% rather than clearing in a wave. Investors should therefore expect a slow bleed of opportunities rather than a sudden fire sale, and should favor buyers with patient capital and operational expertise in multifamily and office, the sectors where delinquency, with office CMBS at 12.16% in September, and oversupply are most acute. Meanwhile, the accelerating office recovery in occupancy and valuations suggests that well-located, well-capitalized assets may recover faster than the distressed tail, rewarding selectivity over broad exposure.

What it means for employees

There is no direct employee angle in this article, which focuses on borrowers, lenders, and investors. Indirectly, a wave of distressed sales and lender takeovers could bring ownership and management changes at apartment and office properties, affecting property managers, leasing staff, and maintenance crews, though the article reports no layoffs or hiring changes, and the stalled transaction market means any such effects are still months away.

What it means for customers

For customers, meaning tenants and renters, the distress in multifamily could cut both ways. Weaker rents and oversupply have already put pressure on landlords, and new owners who buy at bargain prices may have more room to offer concessions or invest in buildings. But borrowers under strain may also cut spending on maintenance and amenities, and properties in distress can see service slip. Renters in oversupplied markets are in the strongest position, with more choice and negotiating power, while the broader message is that the apartment market is still working through the excesses of the low-rate era, so tenants should shop carefully and check a building’s condition and management before signing.

Note: Investment calculations and projections are for illustrative purposes only. Market conditions change frequently. Consult a qualified financial advisor before making investment decisions.