5 Ways to Navigate a 5 Year Commercial Loan Reset

Between 2018 and 2020, commercial real estate investors acquired properties at record low interest rates, often around 4%, and at aggressive cap rates below 5%. Financing terms were favorable, underwriting was loose, and capital flowed freely. Most of these deals relied on short-term, 5 year debt structures with an assumption that refinancing would be easy or that properties would be sold before the loans matured, commonly known as a 5 year commercial loan reset.

Now, in 2025, those loans are maturing in a radically different environment. Commercial interest rates have surged, with current rates as of May 2025 ranging from 5.35% for multifamily loans to as high as 7.50% for hospitality and retail sectors. This sharp increase poses substantial challenges, especially for investors who acquired assets at top of market prices using short term debt. Cash flow margins are thinning or going negative, and refinancing at higher rates is squeezing both equity and investor patience.

5-year commercial loan reset

According to the Mortgage Bankers Association, approximately $957 billion in commercial mortgages are set to mature in 2025 roughly 20% of all outstanding CRE debt. The looming maturity wave is putting pressure on landlords, syndicators, and private equity funds alike.

5 Different Ways to Navigate a 5 Year Commercial Loan Reset

5-year commercial loan reset

1. Renegotiate the Amortization Schedule with Your Lender

Most commercial loans are amortized over 10 years, creating steep monthly payments—especially when the interest rate resets upward. Many lenders are open to extending amortization to 20 or even 30 years to help borrowers manage cash flow.

Example:
A $2.5 million loan at 7% amortized over 10 years results in monthly payments of about $29,000. Recasting to a 30 year term reduces the monthly payment to around $16,650, making the deal viable again. In some cases, lenders may also offer interest-only periods or step-up rate structures for the first few years of the new term. This flexibility is crucial when dealing with a 5-year commercial loan reset, as it gives borrowers a way to manage the sudden increase in payments.

2. Inject Additional Equity to Improve Loan to Value (LTV)

If your property’s value has declined, your LTV may be too high for traditional lenders. One option is to bring in new equity either from existing investors or new partners to strengthen your balance sheet and qualify for refinancing.

Example:

A $3.5 million property with a $2.5 million loan has a 71% LTV. If the property value drops to $3 million, that ratio jumps to 83%. Injecting $400,000 can bring the ratio back under 70%, opening doors to more favorable financing.

This move is often necessary in GP/LP structures, where the General Partner may call for additional capital or restructure the equity stack to meet lender requirements.

3. Use Bridge Loans or Mezzanine Financing to Fill Gaps

Bridge and mezzanine loans are alternative financing tools used when traditional senior lenders won’t fund the entire loan amount.

Bridge loans are short term, higher interest loans (typically 8–11%) designed to cover the gap until the property stabilizes.
Mezzanine financing is subordinate debt that fills the space between senior debt and equity. Rates typically range from 10% to 14%.

Example:

An investor needs a $2.5 million refinance, but the lender will only approve $2 million. A mezz lender provides the additional $500,000, secured by a pledge of equity. The borrower avoids foreclosure and buys time to improve net operating income.

4. Dispose of Underperforming or Overleveraged Assets

If the reset math doesn’t work, it may be better to sell the property rather than fund ongoing shortfalls. Disposing of weak assets allows you to protect stronger ones.

Example:

A struggling retail center with rising vacancy and deferred maintenance is sold, and the proceeds are used to shore up a cash flowing multifamily property. While the sale may be at a discount, it may be preferable to losing both.

Smart portfolio pruning can reduce risk and restore optionality.

5. Partner with Opportunistic Investors or Recapitalization Funds

Many family offices and real estate funds are actively looking to acquire or recapitalize distressed commercial assets. Rather than defaulting, a property owner can partner with one of these groups to stabilize the deal.

Example:

A GP facing a maturity default brings in a private equity group that contributes fresh capital in exchange for a preferred equity position. The original GP retains a minority share and avoids a fire sale.

This approach is becoming increasingly common in 2025 and offers a way to restructure without fully exiting the deal.

Also Read: How to Sell Your House Fast in 5 Steps

Types of Commercial Real Estate Financing Explained

1. Traditional Bank Loans

These are loans provided by commercial banks, regional lenders, and credit unions for stabilized assets with predictable cash flow.

Best For:

Borrowers with good credit and properties with strong operating histories. Ideal for office, retail, industrial, and mixed use assets that are 90%+ leased.

Key Features:

Term: Typically 5 – 10 years with 20 – 25 year amortization
Recourse: Usually full or partial recourse
Rates (May 2025): 6.25% to 7.00%
LTV: Up to 70–75%
DSCR: Minimum 1.25x

Strategic Use:

Best for long term holds. Often the most affordable but slowest to close. Strong relationships with local banks can lead to rate or term flexibility in tough situations.

2. Agency Loans (Fannie Mae, Freddie Mac)

Loans backed by government sponsored entities (GSEs), available primarily for multifamily properties.

Best For:

Stabilized apartment buildings with 5+ units and strong financials. Borrowers must have multifamily experience.

Key Features:

Term: 5 – 30 years, often with interest only periods
Non recourse: Yes
LTV: Up to 80%
Rates: 5.35% -6.9%
Prepayment: Yield maintenance or defeasance clauses

Strategic Use:

Highly competitive rates and longer amortization make these loans popular for long term investors. However, rigid underwriting and asset type restrictions limit flexibility.

3. CMBS Loans (Commercial Mortgage Backed Securities)

Pooled loans bundled and sold to investors as securities. Borrowers interact with servicers, not the original lender.

Best For:

Large-scale properties in Tier 1 and 2 markets with consistent NOI.

Key Features:

Term: 5, 7, or 10 years
Amortization: Typically 25 -30 years
Rates: ~6.00% – 7.50% (depends on the market cycle and are typically based off of the treasury rate of FHLB rate)
LTV: Up to 75%
Non-recourse: Yes, with carve outs

Strategic Use:

Great for locking in long-term, fixed rate debt. The biggest downside is inflexibility—loan modification, defeasance, and assumptions can be time consuming and expensive.

4. Private Money (Hard Money)

Short-term loans from private individuals, funds, or companies. Focused on asset value, not borrower credit.

Best For:

Fast closings, fix and flip projects, distressed properties, or borrowers with credit challenges.

Key Features:

Term: 6–24 months
Rates: 10%–14%
LTV: 60%–70%
Points: 1–4% upfront
Recourse: Often yes

Strategic Use:

Speed and flexibility are the main benefits. These loans are expensive, but sometimes necessary to avoid default or seize an urgent opportunity.

5. Bridge Loans

Short-term, transitional loans used while repositioning or stabilizing an asset.

Best For:

Properties with a clear value add plan (e.g., lease up, renovations, management change).

Key Features:

Term: 12–36 months with extension options
Rates: 7%–10%
LTV: 70%–80%
Often interest- only
Fast close with less documentation than banks

Strategic Use:

A crucial tool for investors pursuing a refinance to perm strategy. Useful during capital improvements or tenant rollover.

6. Mezzanine Debt

Debt that sits between senior financing and equity. Often secured by a pledge of ownership interests rather than the property.

Best For:

Projects that need higher leverage or have funding gaps.

Key Features:

Term: 3 – 5 years
Rates: 9% – 14%
Risk: Subordinate to senior lender
Collateral: Equity interests, not real estate directly

Strategic Use:

Efficient way to increase leverage, especially when property value supports it but senior lender won’t go higher.

7. Preferred Equity

An equity investment with priority payout rights over common equity but no ownership control.

Best For:

Sponsorship groups that want to retain ownership and control but need additional capital.

Key Features:

Returns: Fixed preferred return (8 – 10%), plus upside in some cases
Term: Often 3 – 5 years
No lien, but contractually enforced payment priority

Strategic Use:

Used in syndications as a more flexible alternative to mezzanine debt. Can be layered on top of senior loans without triggering lender objections.

8. Lines of Credit

Revolving credit facility, often secured by a portfolio of properties or business operations.

Best For:

Developers or operators with recurring capital needs or working capital requirements.

Key Features:

Rates: Floating (e.g., Prime + 1–3%)
Use: Capital expenditures, marketing, payroll
Flexible draw schedules

Strategic Use:

Helpful for smoothing out cash flow or covering CapEx without refinancing entire assets.

9. Seller Financing

Seller offers financing directly, usually due to buyer credit issues or off market deal structure.

Best For:

Deals where conventional lenders are reluctant or time is limited.

Key Features:

Terms: Fully negotiable
Rates: Typically 6% – 9%
Term: 1 – 5 years
Often interest only or hybrid structure

Strategic Use:

Useful in niche scenarios, such as family sales, legacy deals, or when a seller wants to defer capital gains via installment sale.

Consider Repositioning or Selling into a GP/LP Structure

5-year commercial loan reset

If you’re facing distress but still believe in the property’s long-term upside, consider repositioning it into a GP/LP structure. This allows you to retain a partial interest while a professional sponsor raises capital, negotiates new debt, and manages the turnaround.

You may sell the asset directly to a syndicator or contribute it to a new partnership, where you transition from sole owner to LP. This strategy can preserve equity and defer tax obligations—especially when used with a 721 UPREIT or structured contribution agreement.

GP/LP Structure and Investor Readiness

In commercial real estate, many assets are held under General Partner / Limited Partner (GP/LP) models. This structure is commonly used in private syndications and allows investors to pool capital while delegating operations.

General Partner (GP) – The operator who manages the property and oversees financing, leasing, and exit strategy. Often contributes 5 – 10% of total equity.
Limited Partner (LP) – Passive investor who provides the remaining capital and receives a proportional return, often subject to a preferred return structure.

To invest as an LP, you typically must be an accredited investor:

$200,000+ income ($300,000 with spouse) for the last two years
Or $1 million+ net worth (excluding primary residence)
Or a Series 65, 7, or 82 financial license

These standards are enforced under Regulation D of the Securities Act and apply to most private placements in the real estate world. As GP/LP deals become a common recapitalization tool in 2025, understanding this structure is key to raising capital or rolling over your ownership.

Conclusion

Rising rates and maturing loans are forcing commercial real estate investors to make tough decisions. But the 5 year commercial loan reset doesn’t have to be the end of the road.

Whether you extend amortization, raise equity, restructure your capital stack, or sell to a more liquid buyer, the key is acting early before your loan matures or your cash flow turns negative.

If you’re facing a 5 year commercial loan reset or want to explore repositioning or selling your investment property, Buyshouses.co can help. We work with investors, landlords, and syndicators to find creative solutions and structure deals that work in today’s market.