Roughly $1.26 trillion in commercial real estate loans are set to mature through 2027. Most originated in the mid-2010s, when rates averaged between 4.1% to 4.7%. Today, refinancing is landing closer to 6.5%, and the widening gap between debt costs and property performance has become one of the most closely watched challenges in commercial real estate.
Despite the tension, Kidder Mathews’ debt & equity and valuation experts believe this “wall of debt” can be scaled—through disciplined underwriting, pragmatic lender behavior, and a recalibration of values rather than a wave of defaults. Three of the firm’s market leaders shared their insights on how the industry can navigate what lies ahead.
Bridging the Rate Gap: Creative Capital Structures and Short-Term Leverage
“Lenders have built various mousetraps for just this issue,” says Brad Kraus, EVP at Kidder Mathews in Los Angeles, who specializes in debt and equity capital advisory. “We’re seeing stretch senior loans—an A and B note rolled into a seamless structure—as well as mezz toppers and preferred equity positions where cash flow supports it. In many cases, partnership capital calls or internal fundraising with a priority return in front of passive members are helping bridge the gap. It’s all about leveraging up the borrower without forcing fresh equity injections.”
Jim Henderson, SVP and debt & equity finance specialist in San Francisco, adds, “With current underwriting constraints limiting loan proceeds—especially on maturing debt—there’s increasing pressure for additional equity to ‘right-size’ leverage. Borrowers unable or unwilling to inject more capital are either turning to higher-priced short-term programs or selling the property outright if equity remains. The ‘kick-the-can’ strategy continues, but with nearly $1 trillion maturing over the next year, lenders can’t defer decisions forever.”
From the valuation side, Bill Drewes, MAI, SVP in Kidder Mathews’ Valuation Advisory Services group, notes that short-term extensions have delayed much of the market’s adjustment. “Many lenders have been able to postpone their reckoning because three-year loans made in 2020 or 2021 came with two one-year extensions,” he says. “That’s bought time—but that time is running out.”
To bridge today’s underwriting gap, Drewes adds, “We’ve seen a mix of loan paydowns, longer amortization terms, interest-only renewals, and in some cases, outright property sales.”
Refinancing Reality: Fundamentals Still Rule
Across all three perspectives, one message is clear: asset performance and sponsor strength matter more than ever.
“The parameters haven’t changed much,” Kraus says. “Multifamily and industrial remain the most attractive property types, followed by retail. Office isn’t being treated like the plague, but it needs a solid tenant base and leasing story. Big box retail without strong sales or a viable submarket remains a tough sell.”
Henderson agrees: “Multifamily, industrial, and self-storage remain the most attractive to lenders, but underwriting is still conservative. Quality, location, and operational history carry tremendous weight—and strong sponsorship will always attract the best terms. In markets like the San Francisco Bay Area, we’re still seeing resilience even as other regions fall out of favor. Conversely, office—except medical office in some cases—remains the riskiest class.”
Drewes offers a sobering data point: “For decades, multifamily loans had the lowest default rates. But that’s shifted. Trepp reports CMBS multifamily default rates rising from under 2.0% in 2023 to over 6.0% in the last two years,” he says. “Agency loans remain stable thanks to disciplined underwriting, but even those are starting to feel pressure.”
Their collective view underscores a market increasingly defined by property type and sponsor credibility, where fundamentals—not optimism—determine access to capital.
The Rate Cut Question: Limited Help, Realistic Expectations
Even as the Federal Reserve’s recent cuts inspire optimism, Kidder Mathews professionals caution against overestimating the impact.
“It’s all about property performance and submarket trends,” Kraus notes. “If the property can support higher debt costs, leverage can be found. The Fed cuts help mainly by giving chief lending officers confidence to compress spreads—but long bonds remain under inflation pressure, limiting real rate relief.”
Drewes adds: “Between 2021 and mid-2023, 10-year Treasury yields rose over 400 basis points. The modest rate cuts we’ve seen—just two 25 basis point cuts so far—help at the margins, but don’t fundamentally change the refinancing challenge.”
Henderson agrees. “Rate cuts always help, especially for variable-rate borrowers. But even with significant decreases, borrowing costs remain high and continue to erode project economics that were underwritten when rates were near zero. Psychologically, it restores confidence—but feelings don’t pay debt service.”
In short, rate policy is secondary to property performance.
Lender Flexibility: Cooperation vs. Collection
Lender behavior remains one of the defining factors shaping outcomes.
“Everybody prefers to kick the can down the road if there’s a viable exit strategy,” says Kraus. “Those who’ve sold off their paper—mainly CMBS and debt funds—are quickest to foreclose. Banks and life companies, true to form, are working with clients where they can.”
Henderson underscores that point. “There are definite differences in lender flexibility,” he says. “Some sources are extremely willing to work through problem loans, while others are well prepared—and in some cases eager—to foreclose. The best thing a borrower can do is be proactive and fully understand what their lender will or won’t do.”
From Drewes’ vantage point, “Some life companies are issuing lower-leverage loans—50% to 60% LTV—using shorter-term Treasuries as benchmarks. That keeps rates lower and deals moving, although sometimes a loan paydown is still required upon refinance.”
The spectrum of lender behavior highlights a bifurcated market: cooperative balance-sheet lenders on one side and hardline institutional capital on the other.
Extensions, Receiverships, and Quiet Resolutions
Despite headlines warning of a distressed wave, Kraus and Drewes expect most resolutions to occur quietly.
“Work it out through negotiations,” Kraus says. “Nobody wants the bad press of foreclosure activity. Those assets that must be sold will move quietly through short sales.”
Drewes observes a shift in strategy: “We’re seeing more lenders appoint court receivers instead of managing assets through internal REO departments. Receivers have more flexibility, and this approach lets lenders manage write-downs more discreetly.”
Henderson adds perspective: “It’s a big number that makes headlines, but until you drill down into who the lender is and what type of collateral and sponsorship supports the loan, it’s hard to forecast default or refinance levels. Many properties are overleveraged and will ultimately trade at discounts—something we’re already seeing in Bay Area office assets. Realistically, we’ll see more distressed or discounted sales as lenders lose the ability or desire to extend.”
The consensus: the debt wall will unwind—but not all at once. Expect negotiated workouts where possible and discounted exits where necessary.
A Different Kind of Cycle
After decades navigating cycles, all three experts agree that this one looks—and feels—different.
“The valuation reset that’s needed will be quiet and moderate,” Kraus says. “There will be losses, yes—but not catastrophic bank failures. There’s enough hungry equity on the sidelines to jump back in at a lower cost basis that doesn’t collapse markets.”
Drewes compares: “The Great Recession was a bubble burst—visible and fast. This one’s unfolding under the radar at a slower, managed pace.”
Henderson frames it plainly: “Same loan resolution playbooks, different factors,” he says. “Lenders still want to minimize losses. Borrowers still want to survive. What’s changed are the triggers—pandemic-era liquidity, zero interest rates, and inflation—but the exit strategies are similar to previous cycles.”
Scaling the Wall with Discipline and Adaptability
The $1.26 trillion debt wall may sound ominous, but as Kidder Mathews’ experts make clear, it is not a cliff—it’s a climb.
Lenders are using every tool—from hybrid structures to strategic extensions—to keep performing assets afloat. Borrowers are adjusting equity positions, recalibrating expectations, and focusing on fundamentals. And while distress will surface in overleveraged sectors like office, most properties with strong sponsorship, sound operations, and viable submarkets will chart a path forward.
Ultimately, the wall is scalable because the market itself has matured. Lessons from past cycles—discipline, transparency, and proactive engagement—are being applied now with greater precision. As Henderson reflects, “The stories change, but the strategies don’t.”
In other words, the coming cycle is less about crisis than correction—a period where capital, confidence, and creativity converge to reset values and rebuild balance sheets. The debt wall stands tall, but as these experts suggest, it’s being met not with fear—but with focus.
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