If you own or operate a commercial real estate asset in the $500K to $5 million range, the financing environment heading into 2026 may be the most consequential you have faced in over a decade.
A massive wave of commercial real estate debt is reaching maturity this year, and the ripple effects are being felt most acutely by investors and sponsors at the small-balance end of the market — the segment that often has the fewest options and the least margin for error.
This is not a hypothetical scenario. Industry data shows that nearly $936 billion in CRE loans are scheduled to mature in 2026, making it one of the largest single-year refinancing events in the history of U.S. commercial real estate. Many of these loans were originated during a period of historically low interest rates, and the borrowers behind them are now facing a dramatically different rate environment, tighter underwriting standards, and in some cases, declining property values.
Nearly $936 billion in CRE loans are scheduled to mature in 2026 — and the average interest rate gap between existing loans and new financing is over 150 basis points.
Why the Maturity Wall Hits Small-Balance Investors Hardest
Large institutional borrowers typically have the balance sheets, lender relationships, and capital reserves to weather a refinancing cycle like this one. They can negotiate extensions, tap preferred equity sources, or restructure debt across their portfolios. Investors operating in the $500K to $5M range rarely have those same advantages.
What makes this cycle particularly challenging for small-balance sponsors is the convergence of several market dynamics happening simultaneously. Banks have become significantly more conservative in their underwriting, especially for transitional and value-add assets. Many regional and community banks — the traditional go-to lenders for deals in this size range — are pulling back from CRE lending or tightening their credit boxes in response to regulatory pressure and their own portfolio concerns.
At the same time, the cost of capital has shifted materially. Borrowers who locked in financing at 3.5% to 4.5% during the low-rate era are now seeing refinance quotes above 6%, and in many cases above 7% for bridge and transitional loans. That spread creates real problems: higher debt service costs that erode cash flow, reduced loan proceeds that require additional equity, and in the worst cases, negative leverage scenarios where borrowing costs exceed the property's return.
The “Extend and Pretend” Strategy Has Run Its Course
Throughout 2024 and 2025, many lenders opted to extend maturing loans rather than force distressed sales or recognize losses. This “extend and pretend” approach bought time for borrowers and lenders alike, but it did not solve the underlying math. Those extended loans are now crowding into the 2026 maturity window alongside newly maturing debt, creating a backlog that the market has to work through.
For investors in the $500K to $5M range, this means that waiting for conditions to improve is no longer a viable strategy. If your loan matures in the next 12 to 18 months, the time to develop your refinancing plan is now — not when you receive a maturity notice from your lender.
What Smart Sponsors Are Doing Right Now
Starting the Process Early
Experienced sponsors are initiating refinancing conversations six to nine months ahead of maturity. This timeline allows for a thorough market survey of lending options, proper property positioning, and enough runway to address any issues that could complicate underwriting — deferred maintenance, occupancy gaps, or incomplete financial reporting.
Exploring the Full Capital Stack
When traditional senior debt falls short — and in this environment, it frequently does — sophisticated sponsors are looking beyond a single loan product. They are constructing layered capital structures that combine senior financing with mezzanine debt, preferred equity, or private credit to bridge the gap between what a bank will lend and what the deal requires. This approach demands a clear understanding of the cost of each capital layer and how it affects the property's overall return profile.
Engaging Capital Advisory Support
Navigating a refinancing in this market is not the same as calling your existing lender and requesting a renewal. The lending landscape is fragmented, with traditional banks, credit unions, CMBS lenders, private debt funds, and bridge lenders all operating with different appetites and underwriting criteria. A capital advisory partner who understands the full spectrum of available options can identify the right sources of capital and position the deal in a way that resonates with the lenders most likely to execute.
Stress-Testing the Numbers
Before approaching any lender, sponsors should be running scenarios that reflect realistic assumptions about interest rates, occupancy, operating expenses, and capital expenditure needs. Lenders are stress-testing every deal that comes across their desk, and borrowers who arrive with well-supported projections and contingency plans stand a significantly better chance of securing favorable terms.
The Opportunity Inside the Challenge
While the refinancing wall presents real risk for unprepared investors, it also creates opportunity. Properties that trade during periods of distress tend to do so at favorable prices, and investors who have their capital structures in order can acquire assets at a basis that would have been impossible two years ago. The key is preparation and access to the right capital partners.
For investors who have been waiting for the market to reset, 2026 may represent exactly the kind of environment where disciplined buyers can build long-term value — provided they approach it with a clear strategy and the right advisory relationships in place.
The investors who will navigate this cycle most effectively are the ones who treat their capital structure as a strategic asset, not an afterthought.
About Brookmont Capital Ventures
Brookmont Capital Ventures is a commercial real estate debt and equity advisory firm headquartered in Washington, DC. The firm provides capital structuring, financing strategy, and advisory services to real estate owners, developers, and investors across a broad range of asset types and transaction structures. Brookmont focuses on disciplined execution and long-term capital alignment for its clients. For capital advisory services, contact us at Jerry@brookmontcapital.net or visit brookmontcapital.net.
