“We expect lenders to remain cautious against reducing loan rates too quickly to account for possible shocks in inflation, unemployment, geopolitics, or other economic uncertainties,” said the report. “Even with some rate relief, borrowing costs are likely to stay elevated for loans that are maturing soon and borrowers who seek refinancing.”

The CRE market faces a $100 billion wave of maturing debt over the next two years. These loans were largely executed between 2014 and 2016 when the market experienced significant CRE lending activity in the post-recession recovery, Trepp said.

Many borrowers locked in long-term financing at historically low interest rates, with weighted average loan rates in the mid-4% range for 2014-2016 vintage loans. Borrowers now face interest rates in the mid-5% to mid-7% range along with tightened credit standards, making refinancing challenging and potentially impacting overall liquidity and valuations in the CRE sector, according to Trepp.

“Properties previously underwritten with lower debt costs may struggle to meet new loan-to-value (LTV) and debt service coverage ratio (DSCR) requirements under higher interest rates, making it harder to secure favorable refinancing terms,” said Trepp. “This could lead to a period of financial strain for property owners, potentially forcing them to increase rents as able, attempt to re-evaluate operating costs, or even consider selling assets to right-size unsustainable debt loads across their portfolios.”

Of $97 billion in loans set to mature, about $32 billion are retail-related, $31 billion are office, $13 billion for lodging, $6 billion multifamily, and $3 billion represent industrial and loans of other property types. Even if these mature in an environment where rates are lower than peak interest rates, there still remains 15% of outstanding loans that may struggle to qualify for sufficient refinancing to take their existing principal balance due to insufficient DSCR. Maturing loans in the office sector show the most weakness across multiple interest rate scenarios; even in a 5.5% rate environment, Trepp estimates that 17% of maturing office loans would fail to qualify for takeout refinancing.

“Our projection of loans that fail to qualify for refinancing based on debt service coverage constraints illustrates the potential refinancing risks ahead, particularly for loans originating from vintages underwritten during periods of lower rates and/or more lenient underwriting standards,” the report said.

“Properties with stable or growing NOI, driven by strong tenant demand and consistent rental income, are better positioned to meet DSCR thresholds, to qualify for takeout permanent refinancing. Conversely, properties facing declining revenues, increased vacancies, or rising operating expenses — such as higher insurance costs, property taxes, or maintenance expenses — may struggle to refinance under higher interest rates and/or tighter underwriting conditions.”