For office property owners, a long-simmering financing challenge is quickly becoming harder to ignore. Nearly one in five outstanding office mortgage balances is maturing in 2026, putting thousands of property owners in the position of having to refinance loans in a dramatically different environment from when many of those deals were originally secured.
The math can be brutal. The 10-year Treasury yield, a key benchmark for commercial real estate borrowing costs, recently climbed to its highest level since 2002. Lenders are also tightening underwriting standards and, in some cases, requiring borrowers to contribute more equity.
For some office owners, that means refinancing isn’t simply more expensive. The numbers may no longer work at all. A property financed several years ago may not support the same loan amount under today’s valuations, interest rates and lending standards. If the existing debt is more than a lender is now willing to refinance, the owner has a gap to fill.
The choices at that point aren’t particularly attractive: inject a substantial amount of new equity, pay down the loan balance, convince the existing lender to restructure or extend the debt, find another lender, or, in some cases, walk away from the property altogether.
As a partner at Williams Teusink, I regularly work with clients navigating complex commercial real estate matters and see firsthand the challenges that arise when financing becomes an obstacle to a transaction. Here are four steps owners can take now to give themselves more options.
1. Start the Financing Process Early
If an existing loan is approaching maturity, don’t wait until the last minute to start planning for what comes next.
Time gives an owner options. It provides a chance to understand what lenders are willing to offer, identify potential obstacles and adjust accordingly. Starting early also grants additional time to evaluate alternatives if an existing lender is unwilling to refinance the property or the proposed terms are not workable.
For owners with loans due within the next year or two, begin the conversation now and develop a realistic picture of what refinancing could look like and what may be required to get a deal done.
2. Cast a Wider Net for Potential Lenders
A challenging lending environment can make it particularly important to explore multiple financing options rather than relying exclusively on an existing banking relationship.
That may include talking with smaller regional or local lenders in addition to larger national banks. Local and regional lenders may approach a potential transaction differently based on their familiarity with the property and local market.
There are no guarantees another lender will offer better terms or be willing to finance a particular office property. But when lender appetite varies, property owners can benefit from understanding the full range of options available before making a decision.
3. Be Prepared to Bring More Cash to the Table
Finding a willing lender may only be part of the challenge. In some transactions, borrowers may need to consider contributing additional equity or paying down an existing loan balance to make financing work.
Existing borrowers may also need to explore renegotiating their current loans, while prospective buyers may ultimately determine the financing available doesn’t make economic sense and decide to wait. That’s why owners approaching a refinancing need to think beyond whether a lender will say yes. Another important question is how much cash it will take to get to yes.
Planning for that possibility early can provide more flexibility than confronting an unexpected cash requirement shortly before a loan matures.
4. Evaluate the Deal Based on Today’s Market, Not Yesterday’s
One of the biggest mistakes an owner can make is assuming the conditions surrounding the original loan will still exist when it comes time to refinance.
Several years ago, interest rates were substantially lower, and there was greater optimism that office occupancy and demand would rebound as employees returned to the workplace following the pandemic.
So take a fresh look at the transaction. What is the property worth today? What loan amount can it realistically support? How much equity might be required? And does refinancing still make economic sense under current conditions?
Approaching those questions with today’s market in mind can help an owner identify potential problems earlier and determine which options are realistically available.
Stay Flexible in a Changing Lending Market
Office property owners can’t control interest rates, lender appetite or the broader commercial real estate market. They can control how they respond.
The financing solution that made sense five years ago may not be the solution that works today. Owners who understand that going into the process and remain open to different lenders, financing structures and capital requirements will be better positioned to evaluate their options and make informed decisions about what comes next.
In today’s office lending environment, flexibility may be one of a property owner’s most valuable assets. For more information on how our team can help you navigate the legal issues surrounding commercial real estate financing and transactions, click here.