Real Estate Under Refinancing Pressure in 2026

The conversation around commercial real estate refinancing is not new. The "maturity wall" has been discussed, modeled, and discounted for at least three years. What is new is that the mechanisms used to delay the reckoning are now producing their own constraints. Over $1.5 trillion in commercial real estate loans matured or will mature between 2025 and the end of 2026, a figure that climbs to $1.26 trillion in 2027 when prior extensions finally come due. This is not a single threshold. It is a multi‑year exposure in which each quarter tests whether owners, lenders, and capital providers can agree on terms that reflect current cost of debt, collateral value, and income performance. In many cases, they cannot.​

The challenge is structural. Most of these loans originated in the 2010s when five‑ to ten‑year money was priced between 3.5% and 5.5%. Refinancing that same capital today requires absorbing rates closer to 6.5%, with loan spreads running 200 to 300 basis points higher than the original terms. For properties whose net operating income has remained flat or declined, particularly in the office and retail sectors, the math does not close. More than half of office loans scheduled to mature carry a debt service coverage ratio below 0.89x, meaning the property's income cannot service the existing debt, let alone refinanced debt at higher rates.​

This is where extend and pretend enters. Through 2024 and 2025, lenders granted extensions, modifications, and restructures on tens of billions in loans, pushing maturities out one, two, or three years. An estimated $600 billion in 2025 maturities were extended from their original dates, with a record $19 billion modified in December 2025 alone. The intent was straightforward: avoid forcing defaults during a period of frozen transaction volume and depressed valuations, and hope that rate cuts, improving fundamentals, or time would narrow the refinancing gap. What it produced instead was a clogged pipeline. Loans that should have cleared in 2024 or 2025 are now crowding into 2026 and 2027, and lenders who have already granted one or two extensions are signaling less willingness to grant a third.​

The New York Fed's analysis of extend and pretend noted that weakly capitalized banks disproportionately extended maturities of distressed loans and understated their default probabilities, resulting in fewer realized defaults but also reduced credit origination for new commercial real estate and corporate lending. This credit misallocation does not just delay resolution. It exposes the balance sheets of both lenders and borrowers to sudden large losses when extensions expire and properties must either refinance at unfavorable terms, accept equity write‑downs, or enter foreclosure. Regulatory pressure on banks has increased accordingly, with supervisors demanding that institutions address concentrations and stop deferring loss recognition.​

Delinquency rates provide a partial view of the stress. As of December 2025, the overall CMBS delinquency rate stood at 7.30%, with office at 12.2% and multifamily climbing to 7.2%. Among office loans that matured before 2026 and remain outstanding, 83.7% are delinquent and 92.7% are in special servicing, meaning the borrower has defaulted or is unable to meet loan terms. These figures reflect loans where extend and pretend has already failed. What they do not capture is the larger volume of loans that have been extended but not yet tested at the new maturity date. When those extensions expire in 2026 and 2027, the distress rate will climb further unless income, valuations, or debt costs shift materially in favor of borrowers.​

The response from private credit has been aggressive. By the end of 2025, alternative lenders accounted for approximately 40% of new commercial real estate loan originations, up from a marginal share five years prior. Between October 2023 and October 2024, loan volume from alternative lenders increased 34% while traditional bank lending fell 24%. This shift is structural, not cyclical. Banks face regulatory pressure to reduce commercial real estate concentrations and maintain higher capital reserves, while debt funds operate under lighter regulatory constraints and can price risk more aggressively. Insurance companies have provided additional capital to private credit vehicles in search of higher yields, allowing these funds to compete on pricing and move faster than traditional lenders.​

Private credit's role is not simply to fill a gap. It is to provide capital in segments where banks will not lend: lower‑quality office space, class B malls, properties with near‑term lease rollover risk, and loans requiring mezzanine or preferred equity structures. These are precisely the situations created by the maturity wall. For borrowers unable to refinance with a bank and unwilling to sell at a loss, private credit becomes the only option, often at higher cost and with shorter terms. This introduces a new layer of refinancing risk in three to five years when those private loans mature and borrowers must once again seek capital in an environment that may not have improved.​

The pressure is not uniform across property types. Industrial assets, buoyed by high occupancy and stable cash flows, show limited distress and continue to attract bank and agency financing. Multifamily faces a more complex picture. While Fannie Mae and Freddie Mac provide refinancing capacity for stabilized properties that meet mission criteria, the sector experienced $104.1 billion in maturities in 2025, jumping 56% to $162.1 billion in 2026 and $167.7 billion in 2027. Many of these loans were originated during the 2010s with interest‑only or short‑term structures, and borrowers now face materially higher debt service. Multifamily distress increased 60 basis points month over month in October 2025, with delinquency concentrated in properties unable to refinance on terms that preserve equity.​

Office remains the most exposed sector. The combination of remote work, declining occupancy, and an oversupply of class B and C space has left a significant portion of the office stock unable to generate income sufficient to support debt at any reasonable leverage. More than $21 billion in CMBS office loans mature through the end of 2026, and the majority of these loans cannot be refinanced without substantial equity infusions or principal write‑downs. Seventy‑five percent of the most distressed office properties were built before 1990, concentrated in markets like New York, Chicago, and Los Angeles where tenant demand for older buildings has collapsed. For these assets, extend and pretend has merely postponed the inevitable: either a recapitalization at a much lower valuation or a transfer of ownership through foreclosure or distressed sale.​

The geography of refinancing stress extends beyond the United States. Germany faces the largest debt funding gap in Europe, with an estimated €31 billion representing 19% of all loans originated between 2016 and 2023. France follows at €17 billion and 18% of vintages. Both countries experienced sharp declines in commercial real estate values during 2022 and 2023, and the projected recovery is slower than in other European markets, leaving borrowers with insufficient collateral to support refinancing. German banks, which hold commercial real estate at approximately 10% of total lending, saw their non‑performing loan ratio for commercial real estate rise to 3.8% by the end of 2023, nearly double the rate at the start of that year. The United Kingdom, by contrast, has a debt funding gap of only 6% due to earlier property value corrections that forced repricing ahead of the broader European market.​

The total European debt funding gap for 2025 through 2027 stands at €86 billion, down from an earlier estimate of €100 billion as maturity extensions and equity injections reduced immediate pressure. This improvement is relative. The gap still represents nearly 13% of maturing loan volumes, and the reduction reflects deferral as much as resolution. Debt‑on‑debt structures, in which junior or mezzanine debt bridges the difference between a new senior loan and the maturing balance, have become more common in Europe, but these structures add cost and shorten the timeline to the next refinancing event.​

The question facing boards and capital allocators in 2026 is not whether the maturity wall exists. It is whether the mechanisms that absorbed the initial wave extensions, private credit, and deferred loss recognition can absorb the second and third waves without fracturing. The answer depends on three variables: the trajectory of debt costs, the pace of property income recovery, and the willingness of lenders to continue extending terms rather than forcing resolution.

Interest rates have stabilized but not fallen to levels that materially ease refinancing. The cost of capital remains elevated relative to the 2010s, and loan‑to‑value ratios have compressed as lenders demand more equity to compensate for lower collateral values. Cap rates have risen, reflecting both higher discount rates and weaker income projections, which further reduces the refinancing capacity of most properties. For a property to refinance successfully in this environment, it must either inject equity, accept a lower loan amount and repay a portion of the maturing balance, or demonstrate income growth sufficient to support higher debt service. Many properties can do none of these.​

Private credit will continue to expand its share of the market, but it is not unlimited. The capital raised by private credit funds must be deployed at returns that justify the risk, and as deal volume increases, selectivity will rise. Borrowers with strong sponsors, well‑located assets, and defensible cash flows will find capital. Those without will not. This bifurcation has already begun. Industrial and grocery‑anchored retail continue to attract competitive financing, while class B office and enclosed malls face widening bid‑ask spreads and limited lender interest.​

The broader implication is that a portion of the commercial real estate stock will not refinance on any terms that preserve current ownership. These properties will either trade at discounts that reflect their distressed status, enter foreclosure and be acquired by lenders or distressed buyers, or remain in special servicing for extended periods while sponsors and lenders negotiate workout terms. The volume of such assets is not yet clear, but the leading indicators delinquency rates above 7%, special servicing balances climbing, and lenders tightening extension criteria suggest it is material.​

For tenants, the refinancing wall introduces operational risk. Buildings that cannot refinance may see service interruptions, deferred capital improvements, or even foreclosure proceedings that disrupt lease administration. Lease‑holders in the wrong building at the wrong time face uncertainty about whether the property will remain competitive or fall into distress. For investors, the maturity wall represents both risk and opportunity. Distressed assets will trade at higher cap rates than were imaginable during the 2010s, and buyers with patient capital and operational capability can acquire properties at valuations that embed significant upside if fundamentals improve.​

The refinancing pressure of 2026 is not a crisis that arrives and departs. It is a multi‑year process in which capital, income, and leverage are repriced across the commercial real estate market. Extend and pretend deferred that repricing but did not eliminate it. The loans are still there, the balance sheets are still exposed, and the cost of capital has not returned to levels that make refinancing painless. What remains is a rolling test of whether each property, each lender, and each sponsor can navigate terms that reflect the current environment rather than the one in which the original loan was made. For many, the answer will be no.