In commercial real estate (CRE) circles, it’s being called the “debt cliff” – a massive wall of loan maturities coming due that has owners and lenders alike sweating bullets. Picture this: nearly $1 trillion in commercial mortgages will mature in 2025 alone , and close to $1.8 trillion by the end of 2026 . That’s a huge chunk of the $4-5 trillion in outstanding U.S. commercial real estate debt . A lot of these loans were taken out 5, 7, or 10 years ago when interest rates were near historic lows (think 3-4%). Now those loans must be refinanced or paid off at today’s interest rates (often 6-8%+ for commercial), and after a pandemic that pummeled certain property values (hello, half-empty office buildings). It’s a perfect storm that has been building quietly, and in 2025–2026 it’s arriving on shore. Some are warning that as these loans mature, many won’t qualify for refinancing without major cash infusions, because the properties’ incomes or values can’t support the new loan terms. In early 2025, one analysis noted that a significant portion of the $500 billion in CRE loans maturing this year is “underwater” – meaning the debt owed exceeds the property’s current value . If true, that’s a red flag: those loans will not be refinanceable at full value, barring owners bringing a bag of cash to the table or lenders extending leniency.

Let’s break down why this is happening. Interest rates have more than doubled since many of these loans originated. For example, an office tower refinanced in 2015 at a 4% rate might face 7% or higher today. Higher rates mean higher debt service (monthly payments). If an owner has to refi the principal at nearly double the interest rate, their monthly payment could jump dramatically – one estimate says debt service could increase by as much as 100% for some near-term maturities . Unless the property’s income has also doubled (unlikely, especially for struggling sectors like office or retail), the new loan might not underwrite. Lenders require a certain debt coverage ratio, and if the net operating income hasn’t kept up, the math doesn’t work. Secondly, property values in some sectors are down. Office buildings are the poster child: with remote work, many offices have higher vacancy and lower rents than a few years ago, which can slash their appraised value. If a building was worth $100 million when a $70M loan was made, but now it’s worth only $60M, a lender is not going to refinance $70M – they might only refinance $40M or $50M. That leaves a gap the owner must fill (often called a “cash-in” refinance – ouch). It’s estimated that a large share of maturing CRE loans are effectively underwater or near it – some analysts have put that figure at 15% or more for certain portfolios . In 2024, we already saw rising delinquencies and owners walking away from properties (notably in the office sector, even big names in big cities just handing keys to the lender). This trend could accelerate as loans come due and can’t be extended.

Now, not all hope is lost. Lenders – including banks and bondholders of CMBS (commercial mortgage-backed securities) – are aware of the cliff and, to an extent, have been kicking the can hoping conditions improve. Many banks offered extensions or short-term modifications in 2020–2023 to buy time. But regulators and accounting rules limit how long they can extend without taking losses. 2025 is a line in the sand for a lot of loans. Banks also have their own pressures (remember those regional bank failures in 2023? – a chunk of that was tied to CRE exposures). We’re likely to see a mix of outcomes: some owners will refinance by injecting fresh equity (painful but feasible if they believe in the asset long-term), others will attempt to sell the property (probably at a discount, which could reset market values downward), and unfortunately, some will default and hand properties to lenders or go through foreclosures. Especially vulnerable are older office buildings, secondary-market malls, and any property that hasn’t recovered from COVID-era shifts. A major commercial brokerage report recently described the situation as an era where forced sales could lead to distressed asset opportunities, unless a “methodical unwinding” with new capital stepping in occurs .

For investors and private lenders, this debt cliff has a silver lining: opportunity. Distress in CRE can mean properties available at discount prices for those with dry powder (cash ready) or alternative financing sources. For example, a value-add investor might snag an office building at 60 cents on the dollar and repurpose it (maybe converting to apartments or life-science labs, where feasible). Private equity funds are actively raising money for “dislocation” deals expecting to pounce on fire sales. Bridge lenders (remember them from Topic 3?) might finance these acquisitions or provide rescue capital to owners who need a short-term loan to buy time and avoid default. If you’re a passive investor in syndications or REITs, be aware of what’s in their portfolio – those heavy in offices or retail may be in for rough times, whereas industrial or multifamily-focused ones might fare better. And if you directly own commercial properties with loans maturing soon, start talking with your lender early. Explore options: can you refinance some now before conditions possibly worsen? Can you lock rate or get an extension? Also, consider alternatives like assuming an existing loan (if you’re buying a property, maybe assume the seller’s loan at a lower rate), or bringing in a JV equity partner to reduce leverage.

At Pinnacle, our advice is grounded in our values: Integrity (be honest with yourself and partners about the numbers – if a deal won’t support new debt, face it head on), Family (think long-term and don’t overextend in ways that could risk everything – we want your portfolio to support your family’s future, not jeopardize it), and Growth (find the opportunity in the challenge – times of flux can be times of significant growth if navigated wisely). We’re actively monitoring the debt markets and have relationships with lenders who can step in with solutions (like mezzanine debt or preferred equity) to plug refinancing gaps where appropriate. In essence, while the CRE debt cliff is a serious challenge – possibly the biggest test for the commercial market since 2008 – it’s not insurmountable. The market will find a new equilibrium: some assets will change hands, prices might reset (cap rates likely rising), and new financing models will emerge. For those prepared, it could be the chance of a lifetime to acquire prime assets at a relative bargain. For those caught off guard, it could be painful. Our role is to make sure you’re in the first group, armed with knowledge and strategy.

Bottom line: The commercial real estate world in 2025 is approaching a refinancing crunch of historic proportions. It’s time to check the maturity dates on your loans, sharpen your pencils on property financials, and have frank discussions with lenders or advisors. Challenges lie ahead, but so do opportunities for those ready to build bridges over the debt cliff. As always, we’ve got your back through it all – helping you turn potential pitfalls into steps toward your pinnacle of success. 🏢📈