Your loan matures in 18 months. What do you do?
This is the question I get more than almost any other, and it's the one that quietly sits under every commercial deal people are afraid to do. Because in commercial real estate, your loan comes due every five years or so no matter what. Doesn't matter how the market's doing. Doesn't matter how well the asset is performing. The clock runs anyway.
Here's my answer, and it hasn't changed in 13 years: five years is a long time. Start working on it 18 months out and you'll be fine.
I'm living this right now on one of my own deals. The note comes due next September and we've already been talking to banks for months. I'd rather refinance six months early than go to the wire. Let me walk you through exactly how I'm running it.
Commercial Loan Maturity, By the Numbers
5 Years
Typical term on a commercial note, regardless of performance
87%
Of the original loan still outstanding at maturity
18 Months
When you should start working the problem
Why Commercial Loans Balloon and Residential Ones Don’t
If you're coming from the residential side, this is the structural difference that trips people up.
On a house, you're typically getting a 30-year term with a 30-year amortization. Pay that note every month for 360 months and on month 360 you own the house free and clear. Term and amortization are the same number, so you never think about them separately.
Commercial doesn't work that way. You'll typically see a 20 or 25-year amortization with a five-year term. The bank calculates your payment as if you're paying it off over 25 years, then balloons the whole remaining balance in five. It comes due on that date whether the property is crushing it or struggling.
And no, you generally can't get a 30-year fixed on commercial. The exception is something like a class AA apartment complex where a life insurance company puts the debt on it, because they want to park money and forget about it. That's not most of us. Ninety-nine times out of a hundred, it's five years. Doesn't matter who you are or how big the project is.
This is one of a handful of real structural gaps between the two asset classes, and I've broken down the rest of them in commercial real estate versus residential. If you're newer to the space entirely, start with my complete guide to commercial real estate investing.
In my experience the fear around balloons is almost entirely a knowledge gap. Once you understand the timeline and the levers, five years is plenty of time to turn a project into something any bank will happily refinance.
You Barely Pay the Thing Down, and That Surprises People
Run the numbers on a $2 million loan at 4%, 25-year amortization, five-year term. That's roughly what you could have gotten five years ago.
Your annual payment is about $126,000. Over the five-year term you'll pay down roughly $257,000 of principal.
Which means 87% of your original note is still outstanding when the balloon hits. You're refinancing $1.74 million on a loan you've been paying faithfully for five years.
That's the part that catches people. They assume five years of payments made a real dent. On a 25-year amortization it didn't. A 20-year am pays down faster, but you give up cash flow every month to get there, so it's a tradeoff rather than a free win.
Know this number going in and the refinance stops being a surprise. It's a math problem you could have seen coming from the day you closed.
What “Repricing” Actually Means
First, the good news. The bank does not want your property. They are not in the business of owning real estate and they have no interest in crossing into that lane. They want you to keep operating it successfully and keep sending a payment every month. That's the entire relationship.
But they do have to reprice it, and that word gets misunderstood constantly.
Repricing is not a renewal. It's an entirely new loan. New rate, new test, new underwriting, as if you walked in the front door with this asset for the first time. The bank will have some familiarity with it, and by then you should have 60 consecutive on-time payments in your file, but structurally you are starting over.
Some banks will happily write the new note and you're golden. Others will say they'd rather turn the paper over and get into something else, at which point you're out talking to other banks. Both outcomes are normal, and the earlier you start the conversation with your existing lender, the better your odds of staying put.
Your Payment History Helps Less Than You Think
Sixty perfect payments is genuinely useful. When your lender goes to loan committee to pitch why the bank should do this deal, that history is a real asset in the argument.
It does not override the covenants. If the bank requires a 1.2 debt service coverage ratio and your deal pencils at 1.1, a spotless payment record isn't going to change the answer. That's not the lender being difficult. That's the box they have to work inside.
Where the history does move the needle is at the margin. If you're at 1.18 and there's a clear, credible path to 1.2 in the next twelve months, a lender who trusts you may work with you on it. That's exactly why you want to start early enough to have a path to point at.
The One Number That Actually Decides It
Your debt service coverage ratio. That's the whole ballgame on a refinance.
The logic is simple and it's actually in your favor. At a 1.2 DSCR, for every dollar of debt service, the bank wants to see $1.20 of net operating income. They're making sure you're earning enough above the payment to make the property worth running. Because if you're only clearing five cents on every dollar you hand them, sooner or later you'll get tired and walk away, and then they own a building. Nobody wants that.
Here's what the repricing looks like on our example. That $1.74 million remaining balance, moving from 4% to 7.5%.
The Same Loan, Repriced
$154K
New annual debt service, up from $126K
1.13x
DSCR if your NOI is $175,000
1.29x
DSCR if your NOI is $200,000
That's a 22% jump in debt service, and it's the whole reason the rate environment matters so much at maturity.
At $175,000 of NOI you land at 1.13. To hit a 1.2 you'd need roughly $193,000, so you're short about $18,000 a year. At $200,000 of NOI you're at 1.29 and you're fine.
Read that gap carefully, because it's measured in NOI, not in payments. The bank doesn't care that you never missed. It cares whether the property produces enough. And $18,000 a year is not a scary number. That's one new tenant. That's a couple of rent bumps at renewal. That's trimming operating expenses by running the place tighter.
Which is the good news buried in all of this: these are numbers you control. You have five years, starting the day you close, to raise NOI and make the refinance a formality. Model the new payment at today's rate and find your gap. My guide to commercial real estate underwriting walks through the math, and you can run the scenario for free in the Deal Analyzer.
The Four Doors, and You Run Them in Parallel
Here's where most owners go wrong. They treat refinancing as the plan instead of one option among several. So they open a single door, and if it doesn't open, they get forced into a sale on somebody else's timeline.
Refinancing is one door. Open all of them at 18 months and work them at the same time. Parallel tracks are what create your leverage, because no single lender and no single partner is ever your only option.
These are the four I'm running on my own note right now.
Door one: competing lenders
Multiple term sheets at once, including from my existing lender. I've got at least three other banks in the conversation, and it comes down to whoever writes the best terms.
Think about what that time buys you. I still have about a year, which means six to nine comfortable months to negotiate as hard as I want. Imagine having that kind of runway on the front end of a deal. You never do, because you're racing to close. At refinance you actually get to negotiate.
Door two: a partner capital paydown
If the partners put money in to pay the note down, everything improves at once. Say three of us each put in $100,000 and knock $300,000 off the balance. Lower loan to value, less risk for the bank, better rate quoted, and lower debt service every month. It strengthens the deal in every direction.
Door three: an internal recapitalization
This is the one I'm looking hardest at, because it solves several problems at once.
There are three of us on this deal. We're looking at bringing in a fourth partner whose buy-in retires 100% of the existing debt. The debt goes away, we get a fresh basis, and there's liquidity available for any partner who wants out.
Then we're unlevered on an asset where we've already built substantial value, and we can put debt back on it whenever we feel like it rather than when a maturity date says so. When we do, those proceeds either get distributed to the partners or go straight into construction. It works out for the incoming partner too.
In our case nobody's taking liquidity, we're reinvesting all of it back into the property. But that door is there if you need it. If you've never brought outside money into a deal, here's my walkthrough on how to raise capital for commercial properties.
Door four: an extension or modification
Pull your loan documents and read the extension language. You may already have the right to extend 12 months for a point, especially with a local or regional lender.
And if you don't have it in writing, call anyway. Ask what an extension would look like. The worst answer is no, and a bank that would rather keep a performing loan than reprice it in a bad market is often willing to talk.
And a fifth: sell a piece of it
You don't have to sell the whole thing. At Peerless Mill we're selling one of the 29 buildings on the property. That one sale pays down debt, returns some capital to the partnership, and funds the next phase of construction. Selling one building makes the refinance on everything else dramatically easier.
A partner can also sell their position. There are more configurations here than people realize. The biggest takeaway from all of this is that you do not have one option. You have many, as long as the deal is healthy and you gave yourself enough runway to work them.
The 18-Month Calendar
Every one of these is a calendar item. Go put them in right now, counted backward from your maturity date.
24 months out. Pull the note and read the extension language. You need to know what rights you already have before you plan around what you don't.
18 months out. Model the payment at today's rate and find your NOI gap. Then look at your rent roll: are there leases you can sign or renew before the refinance that close it?
12 months out. Operational work. Land the new tenant, cut the operating expenses, or build a credible written plan your lender can feel good about. Start calling lenders in parallel.
6 months out. Choose your door. Not 90 days out. Six months, while you still have the leverage of walking to another option.
90 days out. Execute. Finalize the loan, get to closing, done.
I promise you'll sleep better running it this way. The maturity date is not the problem. Not having a plan is. Five years is more than enough time to deal with a commercial note, as long as you're not procrastinating on it.
One Related Question Worth Answering
Somebody on the livestream asked whether it was smart to have refinanced their house at 2.9% and paid cash for a commercial property. Good move. But I'd go further and put debt back on that commercial building, even if it's only 50%.
Here's how I think about leverage. If debt costs 7.5% and I'm getting 20% annualized cash-on-cash returns on my deals, then every dollar sitting in a paid-off building is losing me 13% by not being in the next deal. That's motivating.
You don't have to run it that way. Some people sleep better owning things free and clear, and that's a legitimate choice. Just make it deliberately instead of by default.
Key Takeaways
Commercial notes balloon every five years. Twenty or 25-year amortization with a five-year term is the norm. Thirty-year fixed basically does not exist outside class AA with life company debt.
You will still owe about 87% of it. A $2 million note at 4% on a 25-year am pays down roughly $257,000 over five years. Plan on refinancing nearly the whole thing.
Repricing is a brand new loan, not a renewal. New rate, new test, new underwriting. Sixty on-time payments help at loan committee but will not override a covenant.
DSCR decides it, and DSCR is about NOI. Going from 4% to 7.5% raised debt service 22% in our example. Closing an $18,000 NOI gap is one tenant or a few rent bumps.
Never open just one door. Competing lenders, a partner paydown, a recapitalization, an extension, or a partial sale. Run them in parallel and the parallel tracks become your leverage.
Start at 18 months, decide at six. Pull the note at 24 months, model the gap at 18, do the operational work at 12, choose at six, close at 90 days.
The date is not the problem. Five years is plenty of time. The only thing that turns a maturity into a crisis is waiting until the last minute to look at it.
This article is adapted from an Office Hours livestream on the Tyler Cauble YouTube channel, where I go live every Tuesday at 8:30 a.m. Central and answer your questions. If you want help working your own maturity, take a look at the CRE Accelerator.
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