With a wave of $1.5 trillion1 in commercial real estate loans coming due in the next couple of years, lenders are anticipating a corresponding need for commercial loan refinance options. 

What does this mean for borrowers? Unfortunately, a combination of factors might make it more difficult for you to either pay off your loan or refinance it. On the plus side, there are alternative lending options available.


Tighter Lending Practices

Banks recognize the higher risk of refinancing in the current economy and have tightened lending practices, which means that, in general, they are issuing fewer loans, and borrowers need to follow stricter credit and financial underwriting to get those loans. Rates are also currently the highest they’ve been in over ten years, amplifying the issue and making it even more expensive to borrow money.

Restructuring your loan might be an option, but this could take months or longer. If you’re anticipating the need for a commercial loan refinance, start a conversation with your bank sooner rather than later to understand your options.


Decreasing Valuations

Compounding the issue is the possibility that valuations for commercial properties such as offices and retail spaces could drop as much as 40 percent, estimates say. The pandemic had a significant effect on demand for these types of commercial properties, with vacancies and decreasing rent impacting landlord finances and leading to more loan defaults. The result is a decrease in the value of these types of real estate investments.

The price of commercial real estate, which includes offices, apartments, retail, and warehouse properties, has decreased by 15 percent in the past year. Paired with tighter lending practices and higher rates, this could make it even harder to qualify for a loan to refinance your property to pay off the existing loans that are coming due. People are leveraging at much lower rates, and commercial loans are usually made for 5-10 years. The loan approvals that you were able to get in the past 10 years won’t qualify in this current market.


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Hard Money: An Alternative for Borrowers

If working with your existing lender isn’t an option, or if you don’t want to go through the lengthy process to restructure your loan, you can use hard money as a bridge loan instead of refinancing through a conventional bank. This will allow you to buy time to either wait for the rates to come down or sell the property. Hard money is an interest-only option as compared to bank-amortized loans. As an interest-only loan, the payments are lower than an amortized loan, which helps to bridge the gap.

Hard money lenders base decisions on your equity, not on your credit, occupancy, debt service coverage ratio, or income. The application and approval process is relatively simple and quick compared to conventional banks, and it’s much faster than trying to negotiate a new loan structure with your bank. Hard money might be your only option if your bank decides to demand immediate repayment of your loan. Hard money is one of the only options available if you need to close in less than a week.


Bridge the Gap with Socotra Capital

Socotra Capital is a hard money lender that offers interest-only loans that are backed by equity. Even if your bank declines your extension, you may be able to get a loan based on your equity. The application process takes just a few minutes, and the approval process and closing happen in a matter of days. Whether you need to buy some time or just want the convenience of a fast close, we’re here to help. 

If you’re currently exploring your options for investing in commercial real estate—after all, prices are down in some sectors—read Navigating the Real Estate Market in Any Economic Season to learn more about factors to consider when timing your purchase.


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