Running my own commercial real estate lending firm, I found stress testing was a game-changer. When rates spiked last year, we ran a few scenarios and uncovered risks we hadn't considered, especially with certain property types. Banks should identify which borrowers will face the most refinancing pressure and work with them now, not when the loan matures. Start by modeling higher vacancies and lower property values. That shows you what you're actually up against.
I'm Art Putzel, managing partner at TD&A and a CPA since 1987. I've been working with commercial real estate clients through multiple market cycles, handling both the financial and operational sides of their properties. **Demand immediate cash reserve plans from every CRE borrower--not generic escrows, but specific documented sources for refinancing shortfalls.** I wrote about this exact issue in our investment mistakes article: investors constantly underestimate how fast they'll need capital when problems hit. Right now, with rates at 7%+ and property values compressed, the gap between what a property will appraise for and what the existing loan balance is will require fresh equity injections that most borrowers haven't planned for. We're seeing this play out in real-time in Baltimore. Properties that were 70% LTV three years ago are suddenly at 85-90% based on current appraisals--and that's before considering the income drops from tenant losses. One of our management clients just had to source $340K in 45 days because their refinancing came up $400K short of payoff and the bank wouldn't extend without a major principal pay-down. They had no plan and nearly lost the building. Make borrowers show you--in writing, today--where they'll get 15-20% of their loan balance in cash within 90 days. Not "we'll find it" or "we have wealthy partners." Actual documented liquidity: credit lines, investor commitments, liquid securities. The borrowers who survive 2026 won't be the ones with the best properties--they'll be the ones who can write checks when the math doesn't work.
I've spent 15+ years doing financial modeling and due diligence for fundraising rounds and refinancing, including work with property management companies. The single most effective move is **proactive loan modification conversations starting Q1 2025--not waiting until maturity.** I worked with a client who had three commercial leases coming due within months of each other. We built a 24-month cash flow model showing exactly how they'd service modified terms, then approached lenders six months early. Two of three lenders extended at better rates than we expected because we showed them the plan before they had to put us in their "problem loan" bucket. Banks are already modeling their CRE exposure internally. If you wait until 2026, you're one of hundreds in their workout queue. Come to them in early 2025 with clean financials, a realistic cash flow model, and modification proposals, and you're a partner solving their problem--not another fire to put out. I've seen this timing difference save clients 150+ basis points. The math is simple: every month earlier you start these conversations is another month your loan officer has to advocate for you internally before their boss tells them to tighten standards. Build your model now, stress-test it against higher rates, and get on their calendar before summer.
I've seen this from both sides. Having a cash reserve specifically for your commercial real estate loans is what gets you through the tough spots. When big refinance waves hit, our reserves kept us from getting squeezed. The banks that weathered past downturns were the ones with cash on hand, letting them buy good properties cheap. Community banks should check their reserves now before all those loans come due in 2026.
I've worked with investors whose projects needed sudden refinancing, and the ones who talked to their lenders early always fared better. If I ran a community bank, I'd be looking closely at my existing CRE loans right now. Check on how the properties are actually performing and maybe revisit those loan agreements. Getting ahead of it will make that 2026 wave of maturities a lot less painful for everyone.