After a recovery from the Great Recession of 2007-2009, commercial real estate activity picked up speed in 2015, supported by renewed lending. Now, 10 years later, an increasing wave of property debt is coming due.
Bond rating firm S&P Global expects the so-called maturity wall of borrowed money that requires repayment or refinancing to peak at $1.26 trillion in 2027 — up from $950 billion in 2024. But some market analysts say recent developments give borrowers reason to believe the situation may be challenging, but not as dire as initially expected.
Part of the initial concern over refinancing has been that the average interest rate on those maturing loans ranges from 4.1% to 4.7%, depending on property type. The debt is coming due as the current average loan interest rate hovers around 6.5%, according to analysis of CoStar loan data, making refinancing more difficult.
"Real estate across all property sectors and markets is a capital-intensive asset class — it is, always has been, always will be," Allan Swaringen, managing director at LaSalle Investment Management, and president and CEO of JLL Income Property Trust, told CoStar News in an email. "Because of this, affordable, reliable, and predictably priced debt is one of the critical lubricants for a liquid marketplace for buyers and sellers of real estate. Since the [Federal Reserve] began its prolonged period of rate hikes in early 2022 — debt has generally been unaffordable, unreliable and unpredictable to price. This environment slowed down transaction activity."
But that outlook improved with the Fed cutting its benchmark interest rate by a quarter-percentage point this month, with more reductions expected going into next year. The prospect of lower rates comes at a time when fundamentals — including improving occupancies and declining new construction levels — are improving for most property types.
"The Fed's initial cut, and the prospect of more, meaningfully improves the refinancing outlook for the $1+ trillion in maturities through 2026 — but it won't be a silver bullet," Tim Zwerner, vice chair of Burr & Forman's real estate law practice, told CoStar News in an email. "Best-in-class assets will find refinancing windows open sooner; marginal assets may still face rescue."
Another plus on the refinancing front is that despite the looming maturity wall, distress has yet to materialize at scale, according to Chad Littell, national director of U.S. capital markets analytics for CoStar.
"Since 2023, lenders have consistently extended, modified, and restructured loans," Littell said. "With peak vacancy rates now visible, rent growth poised to accelerate, and new supply shutting off, the fundamental picture is improving. After three years of workouts, it would be out of character for lenders to tighten the screws in 2026 just as conditions begin to turn."
Office distress
There are risks, such as interest rates not falling as some assume, after Fed Chairman Jerome Powell indicated this week that increased labor and inflation concerns could influence any central bank cutting decisions later this year.
Another uncertainty is the performance of office properties. The sector's challenges, partly stemming from more remote work practices lingering from the pandemic, have reduced demand for traditional space, and the distress levels in loans on the commercial mortgage-backed securities market provide evidence of that struggle.
"Context matters," Littell said. "Commercial real estate carries approximately $4.8 trillion in outstanding debt. CMBS accounts for just 13% of the total, but its outsized exposure to office properties makes it a focal point for distress."
More than $21.3 billion in CMBS office loan balances are coming due through the end of 2026, split almost evenly between pre-2026 maturities at $10.6 billion and 2026 maturities at $10.8 billion, according to CoStar data analysis.
Among office loans that matured before 2026 and still have balances outstanding, 83.7% show delinquencies and 92.7% require special servicing due to loan repayment or payoff problems, according to CMBS loan data. Those will be the hardest to refinance, analysts say.
"What we can say for sure is that the delinquency rate on office CMBS loans has been trending steadily upward since early 2023 to an all-time high," said Phil Mobley, national director of U.S. office analytics for CoStar. "More qualitatively, some lenders tell me that office isn't necessarily off the table for them, but there are some challenges to work through. An asset needs a strong story, and both the lender and the borrower need to have conviction on that story."
A likely outcome for many properties, Mobley said, is a continuation of extending loans — if it is reasonable to do so.
"Thus, the headwinds are there, but the 'wall' or 'wave' of maturities seems likely to continue to be a 'ramp' or a 'tide' — steady rather than sudden," Mobley said.
Industrial strength
Industrial properties have the leanest debt maturity concentration, with $53 million in loans having matured without payoff before 2026 and $3.7 billion due next year, including self-storage facilities, according to CMBS data. The sector has a strong 96.8% occupancy rate and low distress levels, the data shows.
"Although the industrial sector has seen some weakness in terms of higher availability and softer rent growth in the last few quarters, there has not been, nor is there expected to be, a collapse in values," said Juan Arias, national director of U.S. industrial analytics for CoStar. "For now, investor appetite and significant dry powder in the debt space should help most of these loans secure refinancing in the near term."
CMBS-financed multifamily properties total $4.2 billion in maturity exposure and show resilience, with a delinquency rate of 0.5% for loans due in 2026. These properties command the lowest borrowing costs across both maturity periods, averaging 4.1% interest rates, CMBS data shows.
In the apartment sector, "credit performance has held up, and the presence of Fannie Mae and Freddie Mac provides additional refinancing capacity where assets and mission criteria align," said Grant Montgomery, national director of U.S. multifamily analytics for CoStar.
Neither Fannie Mae nor Freddie Mac is dealing with large levels of distress. As of August, Fannie Mae reported 63 loans more than 60 days past due, totaling $985.4 million. The 63 loans represent a fraction of more than 27,100 loans with an outstanding loan balance of $505.7 billion.
Freddie Mac reported in August that 99.6% of its more than 28,000 loans, totaling $602.9 billion, were current in their payments.
"Even with refinancing options available, borrowers coming out of older low-coupon loans should expect tighter proceeds and more structure, and lenders will continue to differentiate sharply by asset quality and market," Montgomery said.
Lodging properties carry $6.9 billion in total CMBS maturity exposure and face occupancy challenges across the portfolio.
"With debt maturities mounting, borrowers are looking for interest rate relief to refinance," said Jan Freitag, national director of hospitality analytics for CoStar. "Rate cuts by the Fed are in the cards, which should allow investors and borrowers to refinance debt at more opportune costs. Some owners may deal with required equity infusions to right their debt ratios, but overall, the expectation is for continued muted default rates."
Retail properties rank second in total CMBS loan exposure at $19.2 billion, with most balances maturing after 2025. The retail sector shows 186 pre-2026 loans with 80.1% delinquency rates and 85.5% in special servicing.
"Market conditions for retail financing remain solid for most retail assets," said Brandon Svec, national director of retail analytics for CoStar. "This is being driven by relatively stable [rates of return], above-average occupancies, and rising [net operating income], all of which support healthy refinancing conditions. While some assets may be challenged by recent store closures, minimal new supply and strong demand support a generally positive view of the sector from financing sources."