As Q2 2025 comes to a close, the market remains hindered by high interest rates and more loans facing challenges, as they mature and face tighter underwriting standards.
Commercial real estate investors face an unusual paradox. Interest rates remain elevated, which typically signals a buyer’s market. Yet attractive commercial acquisition opportunities, particularly in the office sector, are scarce.
In this market slowdown, refinancing offers a practical alternative. Instead of selling at a loss, property owners can lower their monthly payments, free up cash, or adjust their loan terms while holding onto the property and waiting for conditions to improve.
What is commercial real estate refinancing?
Commercial Real Estate refinancing involves replacing an existing loan on a commercial property with a new one. This is done to secure more favorable terms, such as a lower interest rate, a longer loan term, a different loan structure, or to access equity built up in the property.
How it works.
- The property owner applies for a new loan.
- The lender assesses the property’s income, value, and the borrower’s creditworthiness.
- If approved, the new loan is used to pay off the current loan.
- In a cash-out refinance, the borrower receives a portion of the property’s equity in cash.
Strategic considerations.
- Realign loan terms with investment goals or a new holding strategy.
- Take advantage of lower interest rates or a stronger borrower profile.
- Refinance before a balloon payment is due.
Investment vs. owner-occupied refinancing
Investment properties are held primarily for income and appreciation. Owner-occupied properties are used by the borrower’s business.
Differences in refinancing.
- Lenders assess cash flow for investment properties and business health for owner-occupied.
- SBA loans are more common for owner-users.
Considerations.
- Investors may focus on maximizing return on equity.
- Owners might prioritize stable monthly payments and operational flexibility.
Commercial real estate refinance loan types
When it comes to refinancing a commercial property, borrowers have a variety of loan products to choose from. Each type of loan offers distinct features, eligibility requirements, benefits, and drawbacks.
Before making any final decisions on a loan source, consider that the term “full recourse” indicates the borrower is personally liable for repayment.
Here’s a breakdown of the most common options in 2025.
1. Bank and life company loans
Bank Loans. Typically offer 5-year terms with 25-year amortization and a loan-to-value (LTV) ratio of up to 75%. Often full recourse, requiring strong borrower financials. Banks may also allow cash-out through equity loans or lines of credit.
Life Company Loans. Long-term (15–25 years), fully amortizing, non-recourse loans. LTV ranges from 55% to 70%. Ideal for Class A properties, which require high credit quality and stable income.
2. CMBS loans
Commercial Mortgage-backed Securities (CMBS) loans are pooled and sold to investors. Offer 5–10 year terms, 25–30 year amortization, and up to 75% LTV. Known for flexible underwriting and cash-out potential, but balloon payments and limited post-closing flexibility can be drawbacks.
3. SBA 504 and 7(a) loans
SBA 504. Fixed-rate loans up to 25 years, up to 90% LTV. For owner-occupied properties and improvements.
SBA 7(a). More flexible, can be used for refinancing, purchases, or working capital. Also up to 90% LTV, typically full recourse.
4. Fannie Mae / Freddie Mac multifamily loans
Government-backed loans for multifamily assets. Terms range from 5 to 30 years, with amortization periods of up to 30 years and LTV ratios of up to 80%. Non-recourse, competitive rates, and flexible prepayment, ideal for stabilized apartment properties.
5. HUD/FHA multifamily refinancing
HUD 223(f) loans offer 35-year fully amortizing terms, up to 90% LTV for affordable housing, and non-recourse structures. Attractive for their lenient Debt Service Coverage Ratio (DSCR) requirements, but involve lengthy, document-heavy approval processes.
6. Cash-out refinancing options
Cash-out refinancing allows owners to access equity for upgrades or reinvestment. Available through many loan types, though LTV limits and underwriting scrutiny may be higher depending on the lender and property risk.
Benefits of refinancing commercial property
Commercial property owners may realize the following advantages through refinancing.
- Improve cash flow and working capital
Lowering monthly payments frees up cash for repairs, leasing commissions, or unexpected market moves. Stronger cash flow gives owners room to breathe and plan. - Access more favorable debt structures
Short-term or maturing debt can be risky. Refinancing into longer terms brings predictability, reduces rollover risk, and coincides better with long-term investment goals. - Unlock capital for reinvestment or growth
With a cash-out refinance, owners can reach into the equity of their property and repurpose it, reinvesting in new assets, improvements, or business expansion without selling. - Lower interest rates and monthly payments
When market rates fall, or when your credit profile improves, refinancing can reduce your interest burden and keep more income in your pocket. - Extract equity from appreciated property value
If your asset has gained value, refinancing lets you tap into that equity and put it to work, without giving up ownership or triggering capital gains taxes. - Adjust loan terms or refinance balloon payments
Refinancing can smooth out approaching debt maturities, helping owners avoid cash crunches or forced sales when balloon payments come due. - Potential tax benefits through interest deductions
Unlike dividends or capital gains, mortgage interest remains tax-deductible, so refinancing can support your tax strategy while restructuring your debt.
Challenges and risks in commercial real estate refinancing
Refinancing can be a smart move, but it comes with its own set of challenges. Here are some common risks to be aware of before you commit.
- High upfront costs and fees
Refinancing comes with a cost. Between appraisals, legal fees, and lender charges, these expenses can quickly add up. It’s important to weigh them against potential long-term savings. - Interest rate volatility
Rates can shift while you’re securing financing. If they jump before your deal closes, your projected savings or your eligibility could be impacted. - Prepayment penalties
Paying off your original loan early might incur fees. These penalties can reduce or even deny the financial benefits of refinancing. - Ineligibility for certain loan types
Not all properties or borrowers qualify for every loan. High vacancy, nontraditional uses, or weak financials can close the door on attractive lending programs. - Impact on cash flow during transition
Delays in closing or overlapping payment obligations can create temporary cash flow stress. Without proper timing or reserves, this can upset operations.
Key considerations before refinancing commercial real estate
Commercial real estate refinancing may yield significant financial benefits for your financial goals and interests, but consider the following before proceeding.
Current property value and appraisal
A professional appraisal determines your property’s current market value, and it’s the foundation for your loan terms. A lower-than-expected valuation can depress your borrowing power or push your LTV ratio beyond acceptable limits.
Market refinance rates
Interest rates change constantly. Compare the stability of fixed rates to the flexibility of variable rates, especially if you expect rates to fall. Understanding trends (and locking in at the right time) can significantly affect your loan’s long-term cost.
Loan-to-value (LTV) and debt service coverage ratio (DSCR)
LTV measures how much you’re borrowing versus your property’s value, and most lenders want 70%–80% or less. DSCR compares your net operating income to debt obligations, with a benchmark of 1.20 times or higher being the standard. Both metrics tell lenders: Can you afford this loan?
Borrower’s credit profile
Lenders will scrutinize your credit score, liquidity, and track record. A strong financial profile not only improves your odds of approval but also unlocks better rates and terms.
Exit strategy and holding period
Will you sell in three years or hold for ten? Refinancing should align with your investment timeline. The ambiguity between loan structure and strategy can create costly complications down the line.
Commercial real estate refinancing requirements
Before applying, gather the documentation lenders expect. These materials demonstrate the financial health of both you and your property.
- Credit score & financials
Lenders will review your credit report and financial statements to evaluate your ability to repay. - NOI, DSCR & rent rolls
These figures indicate the income your property generates and whether it supports the loan you’re requesting. - Operating history
Most lenders look for 1–2 years of stable performance to confirm the property’s financial consistency. - Organizational & property-level documents
Include LLC agreements, tax returns, leases, insurance, and any relevant ownership records.
Breaking down the costs of commercial real estate refinancing
The following chart highlights the key costs incurred in refinancing commercial property.
| Cost Item | What It Covers |
| Application and origination fees | Initial lender charges for processing and setting up the new loan. |
| Appraisal and inspection costs | Verifies current market value and physical condition of the property. |
| Credit check fees | Cost for reviewing your credit profile, usually a small, one-time fee. |
| Legal, title, and escrow costs | Covers legal documentation, title insurance, and funds management at closing. |
| Guaranty and SBA fees | Charged on SBA or government-backed loans, may be rolled into the loan. |
| Prepayment penalties | Fees for paying off an existing loan early, check your original loan terms. |
| Rate lock fees (optional) | Some lenders charge to lock in an interest rate during processing. |
Commercial real estate interest rates and market trends
Interest rates remain a key concern for investors and property owners, as nearly one trillion dollars in commercial real estate (CRE) is set to mature this year.
Volatility in monetary policy, asset performance, and borrower creditworthiness is driving owners and investors to reassess their rate structures, loan programs, and market conditions.
Fixed vs. floating rate trends
Fixed-rate commercial real estate loans offer payment stability and protection against rising rates, making them especially appealing in today’s uncertain market, where average fixed rates are approaching 5.8% for terms of 7–10 years.
Floating-rate loans, tied to benchmarks like SOFR, may carry lower initial costs but expose borrowers to potential rate increases.
SBA 504 loan rate benchmarks
SBA 504 loans continue to appeal to owner-occupants with their long-term, fixed-rate structure and high LTV ratios. As of mid-2025, rates range from 6.20% to 6.39%, remaining below many conventional loan options.
Macro factors influencing refinance rates
CRE refinance rates in 2025 are shaped by broader economic forces, particularly Federal Reserve policy, inflation trends, and global geopolitical events.
Conclusion
Refinancing in 2025 can offer commercial property owners strategic benefits, including lower debt costs and unlocking capital. With proper planning, updated valuations, and a clear understanding of the financial and market conditions, owners can use refinancing to advance business goals and enhance asset performance.
Agora is always here for you to help manage your portfolio, keep investors informed, and move faster with less hassle. Contact us to see how we can support your 2025 strategy.
