Why Refinancing May Be More Difficult in 2026

Many Southern California commercial properties were financed when interest rates were lower and property valuations were stronger. When those loans mature, lenders may evaluate the property based on its current:

• Net operating income
• Operating expenses
• Vacancy and tenant stability
• Lease expiration schedule
• Debt-service coverage
• Current market value

Even a property that has made every payment on time may receive a refinancing offer that is lower than its existing loan balance.

“The refinancing game is really about avoiding too much debt and maintaining enough cash to preserve your options.”

Why Cash Reserves Matter

A lender may require an owner to reduce the principal balance, fund reserves or complete property repairs before approving a new commercial real estate loan./p>

Owners may also need additional cash for:

• Leasing commissions
• Tenant improvement allowances
• Deferred maintenance
• Operating expenses
• Vacancy-related costs

Distributing all available property income can create challenges later. Maintaining liquidity gives property owners greater flexibility when negotiating with lenders or evaluating alternative strategies.

Steps to Take Before Your Commercial Loan Matures

Southern California property owners should begin reviewing their refinancing options well before the loan maturity date.

1. Calculate the property’s current net operating income.
2. Review upcoming lease expirations and tenant options.
3. Identify deferred maintenance or necessary repairs.
4. Prepare vacant commercial units for leasing.
5. Organize leases, financial statements and tenant information.
6. Speak with multiple commercial real estate lenders.
7. Estimate how much additional cash may be required.

Owners should also prepare for more than one possible outcome. A traditional refinance may remain the preferred option, but other strategies could include:

• A partial principal payment
• A loan extension or modification
• Bringing in an equity partner
• Improving the property’s leasing performance
• Selling the commercial property

The Main Takeaway

Waiting for interest rates to decline is not a complete refinancing strategy. No one can guarantee when rates will fall or whether lower rates will resolve a specific property’s financing gap.

The strongest approach is to prepare the property for today’s market, maintain sufficient cash reserves and understand the available options before the loan maturity becomes urgent.