So, January 2026 is almost here, and if you're involved in commercial real estate, you're probably thinking a lot about refinancing. It's not exactly a walk in the park right now, with borrowing costs being higher than they were a couple of years ago. Many loans taken out when rates were super low are coming due, and that's causing some stress. But, it's not all bad news. There are new opportunities popping up, and understanding how to handle these shifting commercial mortgage refinance rates is key. This guide will help you figure out what's going on and what you can do.

Key Takeaways

• Borrowing costs have gone up significantly, making it harder for some properties to cover their debt payments, especially those with floating rates or upcoming adjustments.
• While some global markets face refinancing challenges, others, like parts of Asia, haven't seen the same level of debt-fueled growth, leading to varied refinancing risks.
• New commercial real estate debt is becoming more available with better terms as property values stabilize and lenders focus on stronger deals, offering opportunities for fresh capital.
• To manage the current market, consider alternative debt sources like private debt and equity, adjust investment strategies to account for higher rates, and focus on managing risks and being open with lenders.
• The commercial mortgage refinance rates landscape is split: existing loans face pressure, but new loans often have improved conditions, requiring a dual approach to manage current debt and pursue new opportunities.

Understanding The Shifting Commercial Mortgage Refinance Rates Landscape

It feels like just yesterday we were talking about super low interest rates for commercial mortgages, right? Well, things have definitely changed. A lot of those shorter-term loans that were taken out back in 2022 are coming due soon, and they were underwritten when rates were, like, 3.9%. Now, we're looking at rates closer to 6.6% as of early 2025. That's a pretty big jump, and it's putting a lot of pressure on borrowers, especially those with loans that have variable rates or are due for a reset. It's not just a US thing either; different parts of the world are seeing different levels of refinancing risk. Europe, for instance, has a good chunk of its loans facing potential issues, with Germany and France showing higher concentrations. Asia's situation is a bit more mixed, with Japan seeing some relief from low rates while Australia is feeling the pinch of higher ones.

Impact of Elevated Borrowing Costs on Debt Service

This surge in borrowing costs is a real headache for many property owners. When your interest payments go up significantly, it directly impacts how much cash flow is left over after paying the mortgage. This is often measured by the Debt Service Coverage Ratio (DSCR), which basically shows if the property's income is enough to cover its debt payments. With higher rates, that ratio can shrink, making it harder to meet lender requirements. For loans that were already on thin ice or had floating rates, this can be a particularly tough spot to be in. It means less money for operations, maintenance, or even distributions to investors.

Global Variations in Refinancing Risk

Refinancing risk isn't spread out evenly across the globe. Some markets are feeling it more than others. In Europe, countries like Germany and France have a notable portion of their commercial real estate loans facing potential refinancing gaps. The UK, on the other hand, seems to be in a slightly better position, partly due to earlier corrections in property values. Over in the Asia Pacific region, the picture is varied. Japan's historically low interest rates have eased some refinancing pressure, but countries like Australia are dealing with higher rates, which is making things tougher for lenders and borrowers alike. It really highlights how local economic conditions and central bank policies play a big role.

Emerging Opportunities in New CRE Debt Origination

While dealing with older, higher-interest loans is a challenge, there's a silver lining for new debt. It looks like the market for originating new commercial real estate debt is starting to pick up. Property values are stabilizing in many areas, and lenders are getting more selective, which often means new loans are being written on more sensible terms. We've seen a decent increase in new loan volumes in early 2025 compared to the previous year. This is good news for investors and lenders who have capital ready to deploy. They might find better opportunities now, with spreads tightening a bit, making it more feasible to finance new acquisitions or even refinance existing properties that might have better terms available now.

The commercial real estate lending world is starting to look like two different markets. On one hand, you have existing loans that are struggling because of higher rates and upcoming maturities. On the other hand, new loans are becoming more accessible and often come with more favorable conditions. Success in this environment will likely depend on how well owners can manage the risks in their current portfolios while also taking advantage of the better terms available for new financing.

Here's a quick look at how new loan volumes have been trending:

• Early 2024: Moderate recovery in lending activity.
• Late 2024: Significant increase in new loan originations.
• Early 2025: Continued growth, reaching levels not seen since early 2023.

This trend suggests a renewed availability of debt capital, which is a positive sign for the market.

Strategic Approaches to Commercial Mortgage Refinancing

Okay, so refinancing commercial mortgages in January 2026 isn't exactly a walk in the park. Things have changed, and you can't just do what you've always done. We need to get smart about this. The key is to be proactive and flexible.

First off, let's talk about where the money is coming from. Traditional banks are still around, sure, but a lot of folks are looking at private debt and private equity more these days. It's like, why limit yourself? If you're looking for capital, exploring these alternative sources can open up some interesting doors. It's not just about getting a loan; it's about finding the right partner for your specific situation. For instance, an equity take-out can give you cash to reinvest in your business while keeping ownership of your property [0262].

Then there's the whole strategy part. You really need to look at your investment and underwriting assumptions again. Are they still realistic with today's rates and market conditions? Maybe you need to factor in higher borrowing costs or different exit cap rates. Sometimes, it might even make more sense to sell or repurpose a property rather than just holding onto it.

Here are a few things to consider when rethinking your approach:

• Diversify your debt sources: Don't put all your eggs in one basket. Look into private lenders, debt funds, and even joint ventures.
• Recalibrate underwriting: Adjust your models to reflect current market realities – higher interest rates, potential shifts in property values, and different tenant demand.
• Stress-test your portfolio: Figure out which properties or loans are most vulnerable to market swings and have a plan B ready.

It's also super important to be upfront with everyone involved. Lenders and investors want to see that you've thought things through and have a solid plan, especially if things get a bit rocky. Transparency builds trust, and trust is gold right now.

Finally, managing risk and being clear about what you're doing is more important than ever. Think about what happens if interest rates go up even more, or if property values take another dip. Having contingency plans in place can make a huge difference. It’s about being prepared for different scenarios, not just hoping for the best.

Navigating The Dual Market of CRE Debt

So, the commercial real estate debt market right now? It's kind of like a split personality. On one hand, you've got a bunch of older loans that are really feeling the squeeze. Think loans taken out when interest rates were practically free, now facing massive payment shocks. On the other hand, there's a growing market for new loans, and surprisingly, these often come with better terms than you might expect. It’s a weird situation, but understanding this dual nature is key to making smart moves.

Addressing Stressed Existing Loans and Maturities

This is where things get a bit hairy. A huge chunk of commercial mortgages are coming due soon, and many were underwritten when rates were at historic lows. We're talking about loans from around 2022, when the average rate was maybe 3.9%. Now, rates are closer to 6.6% in early 2025. That's a big jump, and it's putting serious pressure on debt service coverage. Many borrowers are already delaying payments through what are called 'extend-and-pretend' deals, just pushing the problem down the road. It's uncertain how many of these will end up back with the lenders.

Here’s a look at what’s happening with maturing loans:

• Loan Maturity Mountain: Over half of companies surveyed expect property loans to mature in the next year.
• Payoff Prospects: Only about 21% of respondents think they can pay off their upcoming maturities in full.
• Sector Differences: Housing and retail sectors show slightly higher expected payoff rates compared to others.

The pressure from higher borrowing costs is hitting loans hard, especially those with floating rates or upcoming resets. It's a tough spot for many owners.

Capitalizing on Improved New Loan Conditions

While the old loans are causing headaches, the market for new debt is actually looking up. Property values have started to settle, and lenders are getting more selective, which means new loans are often being structured on more reasonable terms. Lenders with fresh capital, not tied to those older, troubled loans, are finding opportunities. We've seen new loan volumes jump significantly, and the spreads on commercial mortgages have tightened. This means borrowers who can qualify might find it easier to get financing for purchases or even refinance existing debt earlier than planned. The multifamily sector, for instance, is seeing strong activity with government-sponsored enterprises increasing their lending caps.

The Role of 'Extend-and-Pretend' Deals

These 'extend-and-pretend' arrangements are a temporary fix, not a solution. They're basically agreements where lenders and borrowers push out loan maturity dates, hoping market conditions will improve. It's a way to avoid immediate defaults and the messy process of foreclosure or a forced sale. However, this strategy just delays the inevitable reckoning. While it can provide breathing room, it doesn't fix the underlying issue of higher interest rates or potentially lower property values. It's a common tactic, but it comes with its own set of risks and uncertainties for both parties involved.

Key Factors Influencing Commercial Mortgage Refinance Rates

So, what's really moving the needle on commercial mortgage refinance rates as we head into 2026? It's not just one thing, but a mix of lender attitudes, how much new business is getting done, and whether investors are still keen on putting money into real estate. These elements all play a part in shaping the cost of borrowing for commercial properties.

Lender Sentiment and Lending Standards

Lenders are like the gatekeepers of capital, and their mood can really change things. Right now, many are being more careful. They're looking closer at deals, asking for more information, and generally tightening up what they consider a safe bet. This cautiousness means they might charge more for loans or simply approve fewer of them. It’s a bit like when your favorite coffee shop suddenly decides to charge extra for whipped cream – you still want it, but it makes you think twice.

• Increased Scrutiny: Expect lenders to dig deeper into property financials and borrower histories.
• Higher Risk Premiums: Loans perceived as riskier will likely come with higher interest rates.
• Focus on Stability: Lenders often favor properties with proven track records and stable income streams.

The overall economic climate and the perceived stability of the real estate market heavily influence how willing lenders are to extend credit and at what cost. When uncertainty is high, borrowing costs tend to climb.

Growth in Loan Origination Volumes

This is about how much new lending is actually happening. When lenders are busy originating a lot of new loans, it can sometimes mean they have less capacity or are more competitive on pricing to win business. Conversely, if origination volumes are low, lenders might be more selective or less inclined to offer aggressive rates. We've seen some recovery here, which is good, but it’s still a balancing act.

• Supply and Demand: High origination volumes can sometimes lead to more competitive rates as lenders vie for deals.
• Market Recovery: An increase in new loan originations generally signals a healthier lending environment.
• Pace of Activity: The speed at which new loans are being processed can impact the availability and cost of capital.

Investor Appetite for Real Estate Allocation

Finally, there's the question of whether investors, both big and small, still want to put their money into real estate. If investors are pulling back, it can reduce the overall pool of capital available for mortgages, potentially driving up rates. On the other hand, if real estate is seen as a good place to park money, more capital flows in, which can help keep rates more manageable. The desire for real estate as an investment class directly impacts the demand for commercial mortgages.

• Risk Tolerance: Investors' willingness to take on risk influences their allocation to real estate.
• Alternative Investments: Competition from other investment types (like stocks or bonds) can affect real estate's appeal.
• Yield Expectations: What investors expect to earn from their real estate investments plays a big role in how much they're willing to pay for debt.

Actionable Guidance for Commercial Real Estate Leaders

Maintaining Agility in Capital Allocation

Things are starting to move again in the capital markets, but the window for getting ahead of the crowd might be closing. It's not about reacting to every little market blip; instead, leaders need to think longer-term and act decisively. This means regularly checking your portfolio, using solid data to see what's working and what's not, and being ready to shift your investments. Maybe you need to put more into property types or areas that aren't getting hit as hard by current economic bumps, while also making sure you're set up to benefit when things improve. Being flexible with where your money goes is key to riding out the ups and downs.

Exploring Alternative Property Types

When the economy feels uncertain, some property types just hold up better. Think about places like healthcare facilities, shopping centers anchored by grocery stores, or just plain old housing – these tend to stay in demand. Beyond the usual suspects like offices, warehouses, and apartments, there's a growing interest in things like data centers, cell towers, and other specialized properties. These alternative areas have been growing steadily and are likely to see even more attention in the coming years. It's smart to look at these less traditional options as part of your investment mix.

The Importance of Early Action in Capital Markets

Don't wait for everything to feel perfectly safe before making a move. The market is showing signs of life, with more lenders cautiously coming back and private credit still a strong option. High-quality properties with steady income are starting to attract more interest. Being an early mover can give you an edge. It’s about having a clear plan and the willingness to execute it, even if there’s still some uncertainty out there. This proactive approach can help you secure better terms and position your assets for future success. Remember, commercial real estate fundamentals are strong, and strategic positioning will be key to navigating future opportunities.

The commercial real estate market is showing signs of recovery, with investment volumes starting to increase. While risks remain, opportunities are emerging for those who are prepared and act strategically. Leaders should focus on agility, explore diverse property types, and be ready to act decisively in the capital markets to capitalize on the evolving landscape.

Comparing Refinancing Options: MLI Select vs. Conventional Mortgages

Structural Differences and Program Objectives

When you're looking at refinancing, you've got a couple of main paths: MLI Select and what we call conventional commercial mortgages. They're built for different things, really. MLI Select is basically a government-backed program, mostly in Canada, aimed squarely at getting more rental housing built and bought. It's all about encouraging investment in that specific sector. Conventional mortgages, on the other hand, are your standard, go-to loans for pretty much any kind of commercial property. Think of it like this: MLI Select is a specialized tool for a particular job, while conventional is your all-purpose wrench.

MLI Select gets its edge from CMHC insurance. This makes lenders feel safer, so they can offer better deals – think higher loan-to-value ratios, longer repayment periods, and generally lower interest rates than you might find elsewhere. It's the government's way of trying to tackle the rental housing shortage. Conventional loans, though, are all about the lender assessing risk on their own – your credit, the property's worth, what the market's doing. They tend to be a bit more conservative with their terms, usually with lower loan-to-value limits and shorter amortization schedules. The application process also varies a lot. MLI Select means jumping through hoops with CMHC rules, like proving energy efficiency and committing to long-term rentals. Conventional loans stick to the usual checks: debt service coverage, your financial health, and property appraisals.

The core difference boils down to government backing versus market-driven risk assessment. This influences everything from loan terms to the application process itself.

Interest Rate and Cost Advantages

This is where MLI Select often shines. You're usually looking at rates that are anywhere from 0.25% to 0.75% lower than what you'd get with a conventional mortgage. That might not sound like a huge gap, but over the life of a big loan, it adds up to serious savings. This lower rate is possible because of that CMHC insurance reducing the lender's risk. Plus, MLI Select lets you stretch out your repayment period much longer – up to 50 years for new builds and 40 years for existing properties, compared to the typical 25-year max for conventional loans. Combining a lower rate with a longer amortization really cuts down your monthly payments.

Let's say you're buying a $2 million property. If you get a conventional mortgage at 4.5% over 25 years, and then compare it to an MLI Select loan at 3.75% over the same 25 years, you're saving about $900 a month. That's over $10,000 a year! If you push that MLI Select loan out to 40 years, your monthly payment could be more than $2,000 less than the conventional option. On top of the interest savings, MLI Select often comes with fewer fees. Lenders might waive application fees or offer discounts on legal and appraisal costs because the loan is less risky. These smaller savings add up, making MLI Select a financially attractive choice for properties that qualify. It also offers more predictable rates for the long haul.

Flexibility and Exit Strategy Considerations

While MLI Select has some great financial perks, conventional mortgages usually give you more wiggle room when it comes to how you use the property, refinancing down the road, and how you plan to exit your investment. MLI Select requires you to keep the property as a rental for the entire loan term. This can be a problem if you want to convert units to condos, sell them off individually, or change the property's use to cash in on market changes. Conventional mortgages typically don't have these kinds of strict usage rules, letting you adapt your strategy as opportunities pop up. Refinancing is another area where conventional loans often win. You can usually shop around with any lender for a conventional mortgage, creating competition to get you better terms or tap into your property's equity. MLI Select refinancing usually has to stay within the CMHC system, which might limit your options and the competitive pressure on rates. Prepayment penalties are also a big difference. Many conventional lenders are more flexible or have lower penalties if you want to pay off your loan early. MLI Select, however, tends to have stricter prepayment terms, which can make exiting your investment early quite expensive. This is something to really think about if you might need to sell quickly or jump on a new opportunity. For investors who value having options and the ability to pivot, conventional mortgages often provide that extra layer of flexibility. You can explore more about the current mortgage industry trends in the Fall 2025 Residential Mortgage Industry Report.

Here's a quick look at some key differences:

• Property Use: MLI Select requires long-term rental use; conventional loans offer more freedom.
• Refinancing: Conventional loans allow broader lender choice; MLI Select is more restricted.
• Prepayment: Conventional mortgages generally have more flexible and less costly prepayment options.
• Exit Strategies: Conventional loans typically provide more diverse and less restricted exit strategies.

Looking Ahead

So, as we wrap up our look at commercial mortgage refinance rates for January 2026, it's clear things are still a bit of a mixed bag. Some older loans are definitely causing headaches, especially with borrowing costs going up. But on the flip side, there's a real chance for new deals with better terms as lenders start to open up again. It really comes down to being smart about what you own now and being ready to jump on new opportunities when they pop up. Staying flexible and keeping a close eye on the market will be key for anyone involved in commercial real estate right now.

Frequently Asked Questions

Why are commercial mortgage interest rates going up?

Interest rates for commercial mortgages are rising because the cost of borrowing money has increased. Think of it like this: when banks have to pay more to borrow money themselves, they charge more to lend it out to others. This is happening because of bigger economic factors, like changes in government policies and the overall health of the economy.

What does 'refinancing risk' mean for commercial real estate?

Refinancing risk means that when a loan on a commercial property is due to be paid back, it might be hard to get a new loan or pay it off. This is especially true if interest rates are much higher than when the original loan was taken out, making it tougher for the property owner to afford the new payments.

Are there good opportunities for new commercial property loans right now?

Yes, even though some older loans are causing problems, there are new chances to get loans. Property values are becoming more stable, and lenders are offering better deals on new loans. If you have money ready to invest, this could be a good time to look into new commercial property loans.

What are 'alternative debt sources' for real estate?

Alternative debt sources are ways to get loans for real estate that aren't from traditional banks. This can include private lenders, investment groups, or other financial companies. Many property owners are looking into these options because they might offer more flexible terms or be more available than regular bank loans.

Why is it important to act early when thinking about refinancing commercial property loans?

Acting early is important because the market can change quickly. If you wait too long, interest rates might go up even more, or lenders might become stricter. Getting ahead of the curve allows you to explore your options, secure better terms, and avoid being caught off guard by market shifts.

What's the difference between an MLI Select mortgage and a regular mortgage?

MLI Select is a special government-backed program in Canada designed to help build more rental housing. It often comes with better loan terms, like higher loan amounts and lower interest rates, because the government helps insure it. Regular mortgages, on the other hand, are standard loans from banks that don't have this special government backing and usually have different rules.