The commercial real estate industry faces a pivotal moment in 2025 as refinancing challenges mount amidst a record $957 billion in loans set to mature, a significant increase from last year’s total. This growing maturity wave, fueled by extended loans from 2024, underscores the shifting dynamics within the sector. While some experts had hoped for relief through Federal Reserve rate cuts, recent indications suggest that rates may stabilize rather than decline further, leaving borrowers grappling with refinancing pressures and elevated debt service costs.
Jeff Havsy, commercial real estate industry practice lead at Moody’s CRE, and Kevin Fagan, senior director and head of CRE economic analysis, highlighted this evolving scenario during a recent video discussion. They emphasized the transition from what was once termed a "maturity wall" to a "maturity wave," reflecting the accumulation of loan maturities over time due to lenders’ widespread adoption of "extend and pretend" practices. This strategy has allowed banks to defer final actions on troubled loans by extending their terms, effectively pushing maturities into future years. Fagan noted that what was initially projected as $573 billion in manageable maturities for 2025 has now surged to nearly $957 billion.
The implications are stark for office properties, which continue to bear the brunt of refinancing stress due to high vacancy rates and the shift toward hybrid work models. Fagan warned that delinquency rates for office loans could climb to as high as 18% this year if interest rates remain elevated—a scenario he described as potentially leading to “a pretty ugly 2025.” Multifamily properties, on the other hand, may see cap rates loosen as refinancing opportunities improve slightly under stable interest rate conditions.
Recommended For You
This is not the first time CRE has faced such challenges. Fagan referenced similar issues during the Global Financial Crisis in 2007 when 10-year-term CMBS loans matured en masse. While some resolutions were achieved through workouts and extensions back then, today’s situation is compounded by shorter loan terms—nearly four-fifths of current loans are five-year terms—and higher leverage ratios, making refinancing more complex than ever.
Despite these hurdles, there are glimmers of optimism within specific sectors. Havsy noted that office owners and borrowers see signs of stabilization in valuations and transaction activity. Additionally, multifamily lending is projected to grow significantly in 2025, with an expected volume of $361 billion—a 16% increase from last year—driven by improving fundamentals and investor interest in residential assets.
Looking ahead, the CRE industry must balance refinancing pressures and broader macroeconomic trends. Stabilizing interest rates could provide some relief for borrowers and lenders alike, but lingering uncertainties around global economic conditions and regulatory challenges remain key risks.
As Havsy remarked, unless rates drop significantly or market conditions improve dramatically, banks may soon face difficult decisions about liquidating non-performing loans—a move that could reshape the industry’s landscape in the years to come.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
