Refinancing can lower the interest rate you’re paying on your commercial property loan, or it can extend your loan term or stretch out your amortization period to ease your monthly payments and boost your operating cash flow.
In some cases, refinancing also lets you tap into your property’s equity through a cash-out refinance.
This extra capital can fund upgrades and renovations, or even help you purchase additional properties.
In this blog, we’re walking you through the common refinancing options available to commercial property owners, so you can take control of your financing and unlock more value from your property.
But first: Why should I refinance my commercial property?
Refinancing can help you improve returns for your equity partners by reducing financing costs or unlocking capital.
It can also boost your cash flow or update your commercial real estate loan terms to reflect the property’s current performance or value, as well as the prevailing market conditions.
1. Equity recapture (increased value)
If your commercial property has increased in value — either from a stronger market or improved NOI — refinancing can help you unlock that equity.
By taking out a larger loan while maintaining the same LTV ratio, you can pull out cash and return it to your equity investors sooner than expected. This early distribution lowers your capital at risk and can boost your IRR.
Example:
If your property rises in value from $10 million to $12 million, refinancing at a 70% LTV results in a new loan amount of $8.4 million ($12M × 70%).
Compared to the original $7 million loan, this creates $1.4 million that can be distributed back to investors.
2. Lower interest rates
Refinancing can also help reduce your borrowing costs. Just be sure to time it when:
- Market rates have dropped since your initial loan.
- Your property’s credit profile has strengthened through stable operations and solid tenants, or consistent cash flow.
Because commercial real estate projects often use debt to cover 50% to 70% of their total capital, even a 1% drop in interest rates can make a meaningful difference in your annual cash flow.
3. Satisfy maturing or temporary debt
If you are using a short-term financing structure for your commercial property, it may eventually need to be replaced.
- Construction loans typically end when you complete the building phase.
- Commercial bridge loans help you quickly acquire or stabilize a property, but they need refinancing when your property achieves steady occupancy and predictable income.
With refinancing, you can transition the asset from these higher-risk, short-term loans into a long-term, permanent mortgage that better matches your property’s stabilized performance.
What are my options in commercial real estate refinancing?
We’ve prepared a quick comparison table below showing typical terms, LTV limits, amortization periods, and recourse structures across major refinancing loan types.
Now let’s walk through each refinancing option in more detail to help you weigh the pros and cons.
Multifamily refinancing with Fannie Mae and Freddie Mac
Both Fannie Mae and Freddie Mac provide several refinancing options for multifamily owners.
- Freddie Mac, for instance, offers fixed-rate loans with five- to seven-year terms for securitized products and terms up to 30 years for non-securitized loans. These programs may allow LTV ratios as high as 80%.
- Fannie Mae’s DUS program offers similar flexibility, with fixed-rate and variable-rate, as well as interest-only structures available across terms ranging from five to 30 years and LTVs up to 80%.
Do note that Fannie Mae and Freddie Mac will not finance your property if it’s entirely commercial.
However, some of their multifamily loan programs allow a limited amount of commercial space — typically around 15% to 25%, depending on the program.
Here’s a sample scenario so you can picture how it works:
You own a stabilized 150-unit apartment community built in 2015, situated in a major metropolitan area.
The only commercial space is a small coffee shop that takes up about 5% of the total floor area.
You’re looking to refinance to secure a lower long-term fixed rate and tap into built-up equity.
If you refinance with Fannie Mae DUS:
You receive a $25 million, 10-year fixed-rate loan with a 30-year amortization at 80% LTV. The structure includes two years of interest-only payments, giving you more cash flow flexibility during that time. The coffee shop’s limited footprint easily falls within Fannie Mae’s commercial-use limits for multifamily properties.
If you refinance with Freddie Mac:
You qualify for a $22 million, 7-year fixed-rate securitized loan with a 30-year amortization.
Because of your property’s strong operating history and desirable location, Freddie Mac offers competitive terms aligned with your goals.
Refinancing commercial real estate with CMBS loans
CMBS loans generally carry five- to ten-year terms, which means you’ll eventually need to refinance to avoid a large balloon payment.
At that point, you could choose another CMBS loan or transition into HUD financing for multifamily properties, bank financing, or even a life company loan, depending on your qualifications and the condition of your asset.
One key advantage of CMBS refinancing is the ability to take cash out, making it appealing when you want to access built-up equity.
Unlike most bank loans with only five-year terms and 10- to 20-year amortizations, a CMBS loan will have longer terms and amortization schedules.
Another benefit is easier approval, since lenders focus more on the property performance than your personal credit.
Here’s an example scenario:
Your real estate fund owns a $60 million multi-tenant retail center originally financed with a CMBS loan.
With the 10-year term ending soon, you face a substantial balloon payment and want to refinance while also withdrawing equity for a new investment.
With CMBS, your refinancing may look like this:
The fund secures a new $40 million CMBS loan with a 10-year term and a 30-year amortization.
The structure includes a cash-out component, releasing $5 million in equity.
Approval will depend on your property’s DSCR and lease quality instead of your personal credit profile as the fund manager because CMBS underwriting prioritizes asset-level performance.
Using bank loans & life company loans to refinance commercial real estate
To approve your refinance, banks will want you to demonstrate consistent income, strong occupancy, and solid property management, though the approval process is still generally easier than qualifying for a HUD multifamily loan or a life company loan.
Most banks allow LTV ratios up to about 70%, and some may stretch to 75% for stronger borrowers.
Many banks also offer commercial equity loans and commercial equity lines of credit, giving you a way to pull equity from their property.
Life company loans, by contrast, offer long-term stability but require stricter underwriting.
These lenders tend to only work with borrowers who have an exceptional financial profile and own Class A properties in top metropolitan areas.
Loan terms often include 25-year, fully amortizing structures, competitive interest rates, and LTV ratios in the 50% to 70% range.
Most life company loans are non-recourse, though terms vary by private lender.
Refinancing owner-occupied commercial property with an SBA loan
SBA financing can be a good route if your business occupies/operates in your commercial property.
The Small Business Administration supports two programs that can be used to refinance existing debt: the SBA 7(a) loan and the SBA 504 loan.
SBA 7(a) loans usually max out at $5 million and tend to close faster, making them practical when you need quick access to capital.
Meanwhile, SBA 504 loans can reach up to $20 million and typically offer lower, more competitive long-term fixed rates.
However, you must be ready for the paperwork and the longer timelines.
Both loan types are generally full recourse. To qualify, your business must meet the SBA’s eligibility rules for industry type and company size.
Here’s an example scenario:
You own a thriving manufacturing company that operates from a light industrial facility. However, you need to refinance your existing mortgage and secure additional funds for equipment purchases.
With an SBA 504 loan, you can refinance with a loan up to the program’s $20 million limit. The long-term fixed-rate portion of the loan helps reduce your monthly payments, while the structure also provides enough funds to pay off the existing mortgage and cover the cost of new equipment.
But if you only need a smaller amount and a quicker funding timeline, you could choose the SBA 7(a) program with its $5 million cap. By accepting a slightly higher interest rate, you can get approved quickly.
Refinancing multifamily properties with HUD multifamily loans
The HUD 223(f) loan is one of the strongest refinancing options for multifamily assets, provided that you’re eligible.
With this loan, you get 35-year, non-recourse, fully amortizing terms, with LTVs that may reach 85% for market-rate properties and up to 90% for affordable housing.
DSCR requirements can be as low as 1.20x for market-rate projects and 1.11x for subsidized affordable properties.
While HUD doesn’t finance fully commercial buildings, up to 20% of net rentable space or 20% of effective gross income can come from commercial uses.
The HUD 223(a)(7) program may be for you if you have an existing HUD-insured multifamily loan — including HUD 223(f) or HUD 221(d)(4) — and you want to extend your term or take advantage of lower rates.
This option streamlines the process, requiring only one third-party report and far less documentation compared to other HUD products.
What are the fees I should be aware of when refinancing a commercial real estate loan?
You will likely need to pay origination fees and other lender-related charges when you refinance your CRE loan.
You may also encounter closing costs and legal expenses, or ongoing insurance premiums tied to the new loan structure.
That’s why you should always ask for a complete breakdown of all costs from the very start, so you can plan ahead and avoid unexpected charges later.
What are the requirements for refinancing a commercial real estate loan?
Requirements differ from lender to lender.
Banks generally prefer you if you have strong financials and may approve refinances up to roughly 70% LTV.
Life companies set the bar much higher, often requiring exceptional financial strength and a Class A property in a major metro.
Their loans usually feature 25-year, fully amortizing terms with competitive rates and LTV ratios between 50% and 70%. Most life company loans are non-recourse, but policies vary by lender.
What documents do I need to provide to refinance a commercial real estate loan?
You will need to provide your lender a comprehensive set of financial and property documents, including your:
- Business tax returns
- Financial statements
- Bank statements
- Details about collateral
- A third-party appraisal of your property
- A business plan and operational strategy
These documents will give your lender a clearer idea of your financial position and the property’s performance.
How can I benefit from refinancing my commercial real estate loan?
Refinancing can improve your loan structure in several ways.
You might secure a lower interest rate, extend the loan term, or stretch out the amortization schedule — each of which can reduce your monthly debt service and improve cash flow.
You can also use refinancing to address balloon payments, which are common in partially amortizing loans such as CMBS loans, hard money loans, construction financing, and bridge loans.
Some bank loans and agency multifamily products from Fannie Mae and Freddie Mac may also include balloon features.
And then there’s the potential to unlock equity. With a cash-out refinance, you can access capital to use for renovations or future investments without having to sell the asset.
Are there risks to refinancing a commercial real estate loan?
Refinancing isn’t without challenges. Your monthly payments can rise after an interest-only period end, since you must begin paying principal in addition to interest.
There’s also the risk that the property’s value may decline, leaving you owing more than the asset is worth.
Because every situation is unique, it’s wise to speak with a qualified commercial real estate advisor or broker before moving forward.
