Debt Maturities, Refinancing Risks, & The Next Market Cycle
By: Gautam Khosla
The United States commercial real estate market is on the verge of a major transformation. Over the next 2-3 years, more than a trillion dollars in property loans are set to mature. At the time of origination, a large majority of these loans originated during an era of historically low interest rates and abundant liquidity. Today, however, those same borrowers face a very different financial environment with higher refinancing costs, stricter underwriting standards, and lower property valuations. These factors combined threaten to squeeze owners who are likely already suffering from declining returns on investment.
This looming “maturity wall” is reshaping how investors and lenders think about and approach risk. Although much of the distress thus far has been concentrated in the office sector, refinancing friction is widening into multifamily, lodging, and retail assets. Yet despite rising defaults and valuation markdowns, the current cycle does not appear to be a repeat of the 2008 financial crisis but rather a slow-burn repricing over the next several years. This is defined by the gradual deleveraging of assets and the adaptive reuse of underperforming properties.
A Wall of Maturities
As of mid-2025, the total outstanding United States commercial real estate debt stood at approximately $4.8 trillion, according to Trepp, with banks and thrifts holding roughly $1.83 trillion, about 38% of the total debt. Regional banks remain the core of smaller balance loans, while commercial-mortgage backed securities (CMBS) and private credit funds dominate institutional-scale deals (Wharton Financial Policy Initiative).
Within securitized pools, Trepp reports that a record share of loans that originated in 2019-2021 are reaching maturity between 2024 and 2026. Many of those properties, particularly office towers, are now worth 20-40 % less than at origination. As a result of this, borrowers who once refinanced easily are now negotiating extensions, pay downs, or transfers to special servicing instead of clean takeouts. The Federal Reserve’s April 2025 Financial Stability Report warned that “a sizable number of borrowers” face refinancing difficulties as valuations and debt proceeds diverge (Federal Reserve, 2025).
The Office Reckoning
The office sector faces this refinancing dilemma more than any other sector. The combination of remote work resulting from pandemic-related effects, tenant downsizing, and expensive capital expenditures has produced a structural, not cyclical, decline in demand. Moody’s Analytics notes that office delinquencies within CMBS rose sharply in 2025, describing the sector as facing a “double whammy” of higher interest costs and weaker fundamentals.
CREFC’s July 2025 data place total CMBS delinquencies at 7.2%, up 180 basis points from a year earlier, with the office sector accounting for most of the increase. Fitch Ratings similarly revised its outlook upward for office linked losses after a string of high-profile defaults in urban cities such as New York, San Francisco, and Chicago. While trophy assets with strong tenants continue to refinance at reasonable terms, commodity B and C class buildings are increasingly facing debt maturities that exceed their underlying value, which will push many investors into value destructive outcomes, from emergency capital raises to handing properties over to lenders.
Other Sectors Feel the Strain
Although the office sector distress headlines are vast, refinancing pressures are being faced by other sectors. Multifamily, which has often been considered the cycle’s defensive play, has seen rising delinquencies among highly leveraged, floating rate borrowers as operating expenses outpace rent growth at significant rates. CRE Finance Council’s April 2025 Monthly CMBS Loan Performance Report shows that the multifamily delinquency rate “surged 113 bps in April to 6.57%” (from 1.33% a year earlier), the highest since the pandemic.
Lodging loans, while benefiting from post-COVID travel recovery, remain vulnerable to revenue volatility and rising labor costs. Retail, once completely written off, has shown surprising resilience, with necessity based centers (e.g. grocery stores) performing better than lifestyle malls. Industrial properties remain the relative bright spot, though even here, rising debt yields and all coupons continue to limit leverage.
The picture that comes into focus is one of fragmentation as some properties and markets are stabilizing, while others remain stuck in refinancing purgatory. The broader trend, as the FDIC’s 2025 Risk Review notes, is that “higher rates have inhibited CRE refinancing activity and pressured valuations, particularly in sectors with weak fundamentals.”
The Challenges of Refinancing
At its core, refinancing risks today come down to three factors: math, valuation, and regulation.
Firstly, the math no longer works. Many loans that originated at 3% coupons are maturing into a world of 6-7% interest rates. Debt service coverage ratios have been cut in half, and proceeds are often 20-30% lower than they were four years ago (FDIC).
Second, valuation resets are eroding equity. Cap rates have expanded, transaction volumes remain muted, and appraisals have fallen in step. Many borrowers face equity gaps that they cannot close without additional capital. According to Trepp, roughly 40% of 2024-2025 maturing CMBS loans required modifications, extensions, or pay-downs.
Third, lenders themselves are constrained. Banks are grappling with tighter supervisory scrutiny and unrealized losses elsewhere on their balance sheets. Nonbank lenders, such as private credit and mortgage REITs, have stepped in, but they demand higher spreads and lower leverage, making refinancing more expensive even when available.
A Contained, Not Systemic, Risk
Despite the stress, regulators see limited systemic contagion. The Federal Reserve’s 2025 Financial Stability Report characterized CRE exposure as a “salient but contained vulnerability,” emphasizing that losses are concentrated among certain regional banks with high office concentrations. Research from the Bank for International Settlements similarly suggests that higher-for-longer interest rates will prolong refinancing challenges but are unlikely to destabilize the financial system as a whole.
What Happens Next
The road forward depends on three factors: interest rates, nonbank liquidity, and asset repricing. A credible disinflation path could reopen capital markets, allowing rates to ease modestly.
Works Cited
Bank for International Settlements (BIS). Quarterly Review: Commercial Real Estate Risks in a Higher-for-Longer Rate Environment. Basel, 2025.
Brookings Institution. Understanding Office-to-Residential Conversions. Brookings Metro, 2025.
CBRE Research. Conversions and Demolitions Reducing U.S. Office Supply. CBRE, 2025.
CRE Finance Council (CREFC). April 2025 Monthly CMBS Loan Performance Report. CREFC, 2025.
Federal Deposit Insurance Corporation (FDIC). 2025 Risk Review. Washington, D.C.: FDIC, 2025.
Federal Reserve Board. Financial Stability Report. April 2025.
Fitch Ratings. U.S. CMBS Office Sector Outlook: Rising Loss Expectations. Fitch, 2025.
GAO – U.S. Government Accountability Office. Commercial Real Estate: Trends, Risks, and Federal Oversight. GAO Report GAO-24-105, 2024.
Kidder Mathews. “CRE’s First-Quarter Pulse: Emerging Trends in 2025.” Kidder Mathews Trend Articles, 2025.
Kroll Bond Rating Agency (KBRA). CMBS Loan Performance Trends: April 2025. KBRA Research, 2025
Moody’s Analytics. U.S. Office Fundamentals and CMBS Delinquency Trends. Moody’s CRE Research, 2025.
Mortgage Bankers Association (MBA). Q3 2025 Commercial/Multifamily Delinquency Report.
MBA Research, 2025.
Office of the Comptroller of the Currency (OCC). Bulletin 2024-29: Commercial Lending — Refinance Risk. OCC, 2024.
Trepp. U.S. Commercial Real Estate Debt Market Overview. Trepp Research, 2024–2025.
Wharton Financial Policy Initiative. Regional Banks and CRE Risks. Wharton School, University of Pennsylvania, 2025.
Read more about the author: Gautam Khosla