Quick answer. If your commercial mortgage is approaching maturity, do not treat refinancing as the default. Compare three paths now: contribute equity and resize the loan, refinance on current terms, or sell before the balloon is due. If your own business operates out of the building, a sale-leaseback is a fourth path. The right answer turns on the new loan proceeds, cash required at closing, cash flow after debt service, property value, taxes, and what you want to own five years from now.
The $5 million property that looked easy to own
Picture an owner who bought a $5 million single-tenant net-lease property when money was cheap. The tenant paid on time. The lease did what it was supposed to do. The owner did not overmanage the real estate because there was little to manage. For years, the loan payment felt almost incidental to the investment.
Then the maturity notice arrives.
The property may still be worth roughly what it cost, or more, and still produce dependable rent. But the debt market that financed the purchase no longer exists. The old loan might carry a rate near 4%. A new loan may price near 7%, require more amortization, underwrite the tenant and remaining lease term more tightly, and return less principal than the balance coming due. Nothing necessarily went wrong with the property. The financing simply reached its expiration date in a different market.
Now the owner has three choices. Write a check to reduce the debt. Refinance and accept the new economics. Or sell while there is still enough time to control the process. If the owner runs a business inside that building, there is a fourth, and it is covered further down.
This page is written for owners of single properties roughly in the $1 million to $20 million range. Not institutions with capital markets desks. People who bought one building, have a business or a job that takes most of the week, and now have a maturity date on the calendar and a decision that does not fit into one evening.
Why the 2026 and 2027 maturity cohorts matter
Commercial real estate debt commonly carries a 5-, 7-, or 10-year maturity, often with principal amortized over 20, 25, or 30 years. That means the large maturity cohorts arriving now can be traced to very specific purchase and financing years:
| Maturity year | Loan term | Origination benchmark date | 10-year Treasury then | 10-year Treasury Sept. 17, 2026 |
Benchmark increase |
|---|---|---|---|---|---|
| 2026 | 10 years | Sept. 20, 2016 | 1.69% | 4.94% | +3.25 pts |
| 2026 | 7 years | Sept. 20, 2019 | 1.74% | 4.94% | +3.20 pts |
| 2026 | 5 years | Sept. 20, 2021 | 1.31% | 4.94% | +3.63 pts |
| 2027 | 10 years | Sept. 20, 2017 | 2.28% | 4.94% | +2.66 pts |
| 2027 | 7 years | Sept. 21, 2020 | 0.68% | 4.94% | +4.26 pts |
| 2027 | 5 years | Sept. 20, 2022 | 3.57% | 4.94% | +1.37 pts |
Source: FRED 10-Year Treasury Constant Maturity Rate (DGS10). September 20, 2020 was a Sunday, so the table uses the next published business-day observation, September 21. Treasury yields are market benchmarks, not the actual coupon on an individual commercial mortgage.
Those years tell the story. Around September 20, the 10-year Treasury was approximately 1.69% in 2016, 2.28% in 2017, 1.74% in 2019, 0.68% in 2020, 1.31% in 2021, and 3.57% in 2022. It closed at 4.94% on September 17, 2026. A Treasury yield is not a commercial mortgage quote, but it is a useful benchmark for understanding why replacement debt can carry a radically different cost and proceeds level.
So an owner facing a 2026 balloon may be replacing a 10-year loan made in 2016, a 7-year loan made in 2019, or a 5-year loan made in 2021. An owner maturing in 2027 may be carrying debt from 2017, 2020, or 2022. The five-year 2022 borrower entered a higher-rate market than the others, but may still confront tighter underwriting, lower value, more amortization, or a weaker lease profile at refinance.
According to the Mortgage Bankers Association, $875 billion of commercial and multifamily mortgages, 17% of the outstanding total, is scheduled to mature in 2026, followed by another $652 billion in 2027. This is not one homogeneous “maturity wall.” It is millions of individual decisions in which a property can still be performing while the old capital structure no longer fits.
What changed in September 2026
On September 16, 2026, the Federal Open Market Committee voted unanimously to raise the federal funds target range by 25 basis points to 3.75% to 4.00%, the first increase since July 2023. The projections released the same day put the median federal funds rate at 4.1% at the end of 2026 and again at the end of 2027, which points to at least one further increase rather than relief.
Two things followed immediately, and both matter more to a small-balance owner than the headline does.
- The bank prime loan rate moved from 6.75% to 7.00% effective September 17, 2026. If any part of your debt floats over prime, or your bank resets to a prime-based rate at maturity, your cost went up that day without you doing anything.
- The 10-year Treasury constant maturity closed at 5.00% on September 15 and 5.01% on September 16, then settled at 4.94% on September 17. Fixed-rate 5- and 10-year commercial loans are quoted off those benchmarks plus a lender spread.
The practical consequence is that the familiar advice to extend, wait, and refinance when rates come down no longer has a rate cut behind it. Owners who took a short extension in 2024 or 2025 expecting a friendlier market are now arriving at a second maturity in a harder one.
Lenders changed too. The Mortgage Bankers Association reported that during 2025, lenders stopped simply extending loan terms, even though long-term interest rates moved very little over the course of the year. An extension that was close to routine two years ago is a negotiation today, and sometimes a no.
A commercial loan maturity is not merely a financing event. It is the date when the market forces an owner to make a new capital-allocation decision. The mistake is waiting for one lender to answer it. A lender can tell you how much it may lend. It cannot tell you whether keeping the property is the best use of your next dollar.
The three choices at commercial loan maturity, and a fourth for owner-occupants
| Path | What it means | Usually makes sense when | Main risk |
|---|---|---|---|
| Write a check | Contribute cash to pay down the balloon so the new loan meets DSCR, LTV, or debt-yield requirements. | The property is sound, the ownership horizon is long, and the incremental equity produces an acceptable return. | Good money can become trapped in a weak asset or an asset with near-term lease or capital needs. |
| Refinance | Replace the maturing debt with a new loan, potentially at a higher rate, lower proceeds, shorter amortization, or more restrictive terms. | NOI comfortably supports the new payment and the retained equity still works under realistic assumptions. | A refinance can solve the balloon but create years of weak or negative cash flow. |
| Sell | Pay off the loan from sale proceeds and redeploy, exchange, or retain the remaining equity. | The equity check is unattractive, the property faces new risk, or the capital has a better use elsewhere. | Waiting too long can turn an orderly sale into a forced process with less leverage over price and timing. |
| Sale‑leaseback Owner‑occupants only |
Sell the building to an investor and lease it back the same day, continuing to operate from the same address. | Your business occupies the building, the refinance falls short, and the capital is worth more inside the business than tied up in the real estate. | You create a long‑term rent obligation and give up future appreciation and depreciation. |
There is no universal winner. The disciplined answer is the path that leaves you with the strongest risk-adjusted position after the loan closes or the property sells, not the path with the least friction this month.
Why a higher interest rate can create a refinance gap
Commercial lenders generally size an income-property loan using more than one constraint. The two that most often bind are loan-to-value and debt-service coverage.
- LTV test: the lender limits the loan to a percentage of the property’s current appraised value.
- DSCR test: the lender limits annual debt service so the property’s underwritten NOI covers the payment by the required margin.
- Debt-yield test: some lenders divide NOI by the loan amount to test how much property income supports each dollar of debt without relying on interest rate or amortization.
The smallest proceeds number wins. If the current balloon on a $5 million property is $3.25 million but today’s underwriting supports only $2.83 million, the refinance gap is approximately $420,000 before closing costs, reserves, escrows, fees, and any required repairs. That shortfall is not arbitrary. A lender sizes the loan with three separate tests and funds the lowest result, and our companion page on the commercial refinance gap and the cash required to close it walks through all three with worked examples from 2016 and 2019 loans.
A simplified example
Assume the owner bought a $5 million single-tenant net-lease property with a $3.25 million loan. The property generates $300,000 of verified annual NOI, equivalent to a 6.00% unlevered yield on the original price. The remaining balance at maturity is approximately $3.25 million for this simplified illustration.
| Item | Existing debt | Illustrative refinance |
|---|---|---|
| Property value / original price | $5,000,000 | $5,000,000 assumed |
| Loan balance | $3,250,000 | $3,250,000 requested |
| Interest rate | 4.00% | 7.00% |
| Amortization | 25 years | 25 years |
| Approximate annual debt service | $206,000 | $276,000 |
| Approximate DSCR | 1.46x | 1.09x |
Illustration only; excludes fees, reserves, escrows, prepayment costs, and lender-specific underwriting.
If the new lender requires 1.25x DSCR, annual debt service cannot exceed $240,000. At the illustrative rate and amortization, that supports a loan of roughly $2.83 million, not $3.25 million. The owner must find approximately $420,000 plus transaction costs, negotiate different terms, improve underwritten NOI, or pursue a sale. If the appraisal or lender LTV produces an even lower number, that lower limit controls.
Is this negative leverage?
Negative leverage occurs when the property’s unlevered yield is below the effective cost of debt. It does not occur simply because today’s interest rate is higher than the old loan rate. Mortgage constant, amortization, fees, NOI, cap rate, and the amount borrowed all matter.
Run it on the example above. The property yields 6.00% unlevered. The new loan at 7.00% over a 25-year amortization carries a mortgage constant of roughly 8.48%, because the constant counts principal repayment as well as interest. Every dollar borrowed costs about 8.5 cents a year and buys 6 cents of income. That is negative leverage, and it is why the refinance leaves so little cash flow even though the property itself never stopped performing.
Borrowing more may reduce rather than increase the equity’s current cash yield. That does not automatically mean “sell.” It means leverage is no longer doing the job owners usually hire it to do.
For a NNN owner, there is another wrinkle: lease term and debt term must fit. A lender may be unwilling to provide a ten-year loan against a lease with five firm years remaining, or it may underwrite a lower value and tighter proceeds. Tenant credit, guarantee structure, renewal options, rent relative to market, and the real estate’s second-generation utility all enter the decision.
When writing a check is the best answer
Contributing equity is rational when the property is stronger than the financing problem. That usually means:
- the tenant, lease, and location still support durable income;
- the new payment leaves a real cash-flow cushion;
- major capital expenditures are identified and funded;
- the owner wants to retain the asset through the next cycle;
- the return on the new equity is competitive with alternative uses; and
- the contribution is not masking a value, vacancy, or rollover problem.
Calculate the return on the new cash, not just the historical return on the original purchase. If an additional $750,000 preserves only $35,000 of annual distributable cash flow and the property still faces a lease event in three years, sentiment may be doing more work than the math.
When refinancing is the best answer
Refinancing is strongest when the property can carry the debt without heroic assumptions. Look for:
- DSCR above the lender minimum with room for ordinary volatility;
- loan proceeds sufficient to retire the balloon without an outsized cash contribution;
- a maturity date that falls comfortably inside the firm lease term;
- manageable recourse, reserves, covenants, and prepayment terms;
- cash flow that remains acceptable after the new payment; and
- a clear reason to keep owning this specific property.
Do not compare quotes on interest rate alone. Compare proceeds, amortization, annual debt service, cash required at closing, recourse, fees, reserves, prepayment protection, closing certainty, and future flexibility. A lower-rate loan with expensive defeasance or a short maturity can be the costly option.
When selling before maturity is the best answer
A sale deserves serious consideration when one or more of these conditions exist:
- the equity check needed to refinance is larger than the owner wants to commit;
- cash flow after refinancing becomes thin or negative;
- the lease expires, resets, or becomes harder to finance during the new loan term;
- tenant credit, unit performance, or the guarantee has weakened;
- near-term roof, HVAC, parking, environmental, or re-tenanting costs are material;
- the owner wants liquidity, estate simplification, diversification, or a 1031 exchange;
- the property’s market value is attractive relative to the income and risk being retained; or
- there is not enough time or lender certainty to close before maturity.
Selling is not an admission that the property failed. Sometimes the highest-value decision is to transfer the next financing, lease, and capital cycle to a buyer who is better equipped to own it.
Read the prepayment terms before you plan anything
One clause can remove the sale path entirely, and owners routinely find it late. If the loan carries yield maintenance or defeasance, paying it off early can cost a meaningful percentage of the balance. On a CMBS loan that cost can exceed whatever an earlier sale would gain. A step-down penalty, often structured as 5-4-3-2-1, is far more manageable and usually falls to zero in the final year. Many loans also open a free prepayment window in the last 90 to 180 days before maturity.
Pull the loan documents and find the prepayment section before you call a broker or a lender. It decides whether selling twelve months early is a real option or an expensive idea, and it takes ten minutes to check.
The fourth path: sale-leaseback, if your business occupies the building
This one is narrower than the other three and deserves an honest boundary. It applies only if your own business operates out of the property you own. A dentist who owns the building through an LLC and pays rent to that LLC. A veterinarian, an auto shop, a funeral home, an urgent care operator, a small manufacturer, a restaurant owner who owns the real estate. If you bought the building as an investment and a third party pays you rent, this section is not for you, and the three paths above are the whole menu.
For an owner-occupant, refinancing and selling are not the only two doors. In a sale-leaseback, you sell the real estate to an investor and sign a long-term lease the same day. You keep operating from the same address. You stop being a borrower and a landlord and become a tenant.
The arithmetic is different from a refinance, and that is the entire point. A refinance returns a portion of value, frequently 60% to 70% once the lender applies its coverage, value, and debt-yield tests. A sale returns the value, less costs and taxes. Using the same $5 million property from the example above: the refinance sized at 1.25x coverage produced $2.83 million. A sale at the same value produces roughly $5 million before costs. That gap is not a rounding difference, and it is the reason the path is worth knowing about even if you end up not taking it.
What you give up is equally concrete. Appreciation from this point forward goes to the buyer. So do the depreciation deductions. You control the premises only for the lease term you negotiate, which is why lease length and renewal options are worth more attention than the headline price. And you create a rent obligation the business has to cover every month in good years and bad.
One thing that surprises most first-time sellers: the rent you agree to is what sets the price. Investors are buying the lease, not the building. A higher rent produces a higher sale price and a heavier obligation on the business. That trade is the negotiation, and it should be run by someone who is not also collecting a fee on the rent number.
A sale-leaseback earns serious consideration when refinance proceeds fall short of the payoff, when the capital does more inside the business than sitting in the walls, or when the owner is within a few years of selling or transitioning the practice. It is the wrong answer when the business itself is fragile, because a long-term lease is a fixed cost that does not flex when revenue does.
How far before loan maturity should you start?
| Time remaining | What to do | Sale strategy available |
|---|---|---|
| 24–36 months | Audit the loan, lease, property condition, tenant credit, and likely refinance constraints. Establish a current value range. | Confidential off-market buyer mapping and long-range exit planning without signaling urgency. |
| 12–24 months | Request preliminary lender terms, calculate the refinance gap, and prepare clean diligence materials. | Test off-market demand or design a national launch around the strongest buyer window. |
| 6–12 months | Run refinance and sale tracks in parallel. Review prepayment, payoff, title, survey, estoppel, and tax strategy. | Full on-market national distribution remains feasible, but the calendar matters. |
| 3–6 months | Choose the execution path, engage the lender and closing team, and build contingency time. | A sale may still close, but financing and diligence failures can collide with maturity. |
| Under 90 days | Contact the existing lender immediately and obtain a written payoff and maturity plan. Preserve every viable option. | Urgent execution; leverage over terms and timing is reduced. |
The best moment to evaluate a sale is when you do not yet have to sell. Time creates negotiating leverage. It also lets an owner compare a confidential off-market process with broad on-market exposure instead of accepting whichever path can close fastest.
Off-market or on-market: two different tools
Off-market exposure can fit an owner who is 12 to 36 months from a decision, values confidentiality, wants pricing discovery, or will sell only if a defined outcome is available. It is not code for “no competition.” A disciplined off-market process still identifies the buyer universe, controls information, creates deadlines, and compares credible offers.
On-market national distribution fits an owner ready to maximize exposure and execute within a defined window. For a property whose likely buyer may be outside the local market, especially a single-tenant net-lease asset, national reach matters. Investment Grade can coordinate on-market distribution through the appropriate broker-of-record and co-broker structure across the United States.
Learn more about why owners choose off-market distribution, or review the broader rental-property exit decision framework.
The commercial loan maturity worksheet
Before deciding, collect these numbers and documents:
- current principal balance, maturity date, amortization schedule, and payoff statement;
- prepayment penalty, yield maintenance, defeasance, extension options, and recourse;
- trailing-12-month NOI and the NOI a lender is likely to underwrite;
- current value range and a realistic sale-price range;
- new loan rate, amortization, DSCR, LTV, debt yield, reserves, and fees;
- firm lease term, options, guarantee, rent schedule, and tenant credit;
- deferred maintenance and capital expenditures;
- tax basis, depreciation history, ownership structure, and 1031 objectives reviewed with qualified advisers; and
- the owner’s required liquidity, income, hold period, and estate goals.
Then produce one page with three columns: equity contribution and hold, refinance, and sell. If the assumptions cannot fit on one page, the decision is probably being hidden by complexity.
Which of the three is right for your property?
Most owners compare two paths and pick the one their lender showed them. The three numbers that decide this are what a lender will actually fund, what you would bring to closing, and what the property would sell for today.
- Refinance. What a lender will fund today, which of the three underwriting tests binds, and what the payment does to your cash flow.
- Contribute equity. The cash required to close the gap, and what return that specific dollar earns by staying in this property.
- Sell. What the property would bring today, what your prepayment terms cost, and whether the timing still favors you.
- Sale leaseback. Added when your own business occupies the building, because then the tenant and the borrower are the same person.
Nothing to learn and nothing for you to model. Answer three questions, send the loan documents, the lease, and the last twelve months of operating numbers, and a person reads them.
Confidential. If a sale turns out to be the right path, any listing or co brokerage runs through the appropriate broker of record. We can introduce you to lenders on the debt side. This review is informational and is not lending, legal, tax, or investment advice.
Related Investment Grade research
- What investment grade means across credit, bonds, and real estate
- The investment grade guide
- Investment grade credit tenant ratings database
- NNN properties and how net lease assets are underwritten
- 1031 exchange guide for net lease owners
Frequently asked questions
Should I refinance or sell my commercial property?
Refinance when current NOI supports the new payment with a durable cushion, the equity contribution is acceptable, and you still want to own the property through the next loan term. Consider selling when the refinance gap is large, post-debt cash flow is weak, lease or capital risk is approaching, or the equity has a better use elsewhere.
What happens if my commercial mortgage matures and I cannot refinance?
The balloon remains due under the loan documents. Contact the lender before maturity to discuss payoff, extension, modification, or other remedies, while simultaneously testing equity and sale alternatives. Do not assume an extension will be granted. Rights and remedies depend on the loan documents, collateral, guarantees, lender, and applicable law.
How much cash will I need to refinance a commercial loan?
Subtract the maximum new loan proceeds from the payoff amount, then add closing costs, lender fees, reserves, escrows, repairs, and any prepayment or extension costs. Maximum proceeds are usually the lowest amount supported by DSCR, LTV, debt yield, and lender policy.
Can I sell a commercial property before the balloon payment is due?
Yes, subject to the loan’s payoff and prepayment provisions. Starting early creates time to prepare diligence, resolve title or lease issues, compare off-market and on-market strategies, negotiate the payoff, and, if appropriate, plan a 1031 exchange with qualified tax and legal advisers.
What are the most common commercial real estate balloon terms?
Five-, seven-, and ten-year loan terms are common, often with principal amortized over 20, 25, or 30 years. Because the amortization period is longer than the loan term, the remaining principal becomes due as a balloon at maturity. Bridge loans are commonly shorter and may be interest-only.
Does a higher refinance rate automatically mean negative leverage?
No. Negative leverage means the property’s unlevered yield is below the effective cost of the debt. The note rate is only one input. Loan fees, amortization, mortgage constant, NOI, cap rate, and leverage amount determine whether debt increases or reduces the equity’s current yield.
How early should I prepare for a commercial loan maturity?
Begin 18 to 24 months before maturity when possible, and earlier for complex assets or large balances. That creates enough time to improve reporting, address property issues, obtain lender feedback, evaluate sale value, and preserve both confidential and broadly marketed sale options.
Did the September 2026 Fed rate hike change my refinance options?
Directly, if any part of your debt floats. The bank prime loan rate moved from 6.75% to 7.00% effective September 17, 2026, after the Federal Open Market Committee raised its target range to 3.75% to 4.00%. Fixed-rate commercial loans are priced off Treasury yields plus a lender spread rather than off the funds rate, so the effect there is indirect. The larger change is the outlook: the committee projects a median funds rate of 4.1% at the end of both 2026 and 2027, so a plan built on waiting for lower rates no longer has a forecast behind it.
Should I do a sale-leaseback instead of refinancing?
Consider it only if your own business occupies the building. A sale-leaseback converts the real estate to cash at full value and replaces the mortgage payment with rent, which usually returns far more capital than a refinance sized to a lender coverage test. The trade is real: you give up future appreciation and depreciation, and you sign a long-term lease the business must carry. It fits an owner who needs capital in the business or is within a few years of a transition. It fits poorly when the business cannot comfortably cover the rent.
Can a prepayment penalty stop me from selling early?
It can make an early sale uneconomic. Yield maintenance and defeasance, common on CMBS loans, can cost a significant percentage of the outstanding balance if the loan is retired well before maturity. Step-down penalties are milder and usually decline to zero in the final year, and many loans open a free prepayment window in the last 90 to 180 days. Read the prepayment section of the loan documents before making any plan that assumes a sale.
Sources and methodology
Maturity volume is from the Mortgage Bankers Association’s 2025 Commercial Real Estate Survey of Loan Maturity Volumes, published February 9, 2026. Treasury observations are from the Federal Reserve Bank of St. Louis FRED 10-Year Treasury Constant Maturity Rate series through September 17, 2026. The federal funds target range, bank prime loan rate, and Treasury constant maturity readings for September 11 through September 17, 2026 are from the Federal Reserve H.15 Selected Interest Rates release dated September 18, 2026. The September 16, 2026 policy decision and rate projections are from the FOMC statement and Summary of Economic Projections issued that day. Lending concepts are informed by the OCC Commercial Real Estate Lending Comptroller’s Handbook. Worked examples are simplified illustrations, not loan quotes or valuations.
- Mortgage Bankers Association: 2026 maturity volumes
- FRED: 10-Year Treasury Constant Maturity Rate
- OCC: Commercial Real Estate Lending handbook
- Federal Reserve H.15: Selected Interest Rates
This page provides general educational information, not lending, legal, tax, investment, appraisal, or accounting advice. Loan terms, property values, sale proceeds, tax results, brokerage requirements, and suitable strategies are transaction-specific. Consult qualified advisers and review the controlling documents before acting.
