Some 23% of the multifamily loans due for repayment in the U.S. between October 2026 and December 2028, or 31% by loan balance, could not be refinanced at today's interest rates unless their owners put in more money, according to a CRED iQ analysis published by Commercial Observer on 19 October 2026. That finding brings refinancing risk in real estate, a subject usually found deep in offering documents, close to the top of what investors in private U.S. property should check.
A property loan runs for a fixed term, and when that term ends the loan has to be repaid or replaced. If rates are higher or income is lower than when the loan was signed, the new loan may be smaller than the old one, and someone has to fill the gap. How that gap is filled decides whether distributions continue, whether investors are asked for more capital and, in a bad case, whether their equity survives. A separate guide explains how U.S. property types and market conditions differ, and this article looks at the debt underneath them.
What Refinancing Risk in Real Estate Means
Refinancing risk is the chance that a property cannot replace its existing loan on acceptable terms when that loan matures. Many U.S. commercial property loans leave most of the principal outstanding at the end of the term, a structure known as a balloon payment. The owner then repays the old loan by taking out a new one or by selling the building.
A lender sizing a new loan looks mainly at two measures. The first is the loan-to-value ratio, the loan as a share of the property's appraised value, explained further in how the loan-to-value ratio works for commercial property. The second is debt service coverage, which compares net operating income, the rent left after operating costs, with the yearly loan payments. When interest rates rise, the same income supports a smaller loan, and when values fall, the same loan-to-value limit also produces a smaller loan.
The CRED iQ analysis tested loans against a coverage level of 1.25 times, which in practice means income must be at least one and a quarter times the loan payments. A property that clears that level at current rates can usually refinance close to its existing loan size. A property that falls short can borrow less, and the difference must come from elsewhere. The measure itself is covered in what the debt service coverage ratio shows.
Why Loans Written in 2021 and 2022 Face the Hardest Test
CRED iQ reported that loans originated in 2021 and 2022 carried a median interest rate of 3.35%, set when borrowing costs were close to historic lows. Of those loans, 46% would need new equity to refinance, compared with 15% of loans written between 2016 and 2018. Owners who borrowed at the cheapest point of the cycle now face the widest gap between their old rate and the rate on offer today.
Part of the gap is recent. The Federal Reserve raised the federal funds target range by a quarter of a percentage point to 3.75% to 4% on 16 September 2026, its first increase since 2023, according to the Federal Reserve's policy statement. CRED iQ estimated that this single move pushed 178 more loans, carrying US$4 billion of debt, below its coverage level and added US$846 million to the new equity needed.
Income matters as much as rates. Loans that failed the test had seen much weaker growth in net operating income since they were first underwritten than loans that passed. Across the whole sample of US$136 billion, CRED iQ put the equity needed at US$6.8 billion, with a median shortfall of about 15% of the loan amount.
What Happens When a Loan Cannot Be Refinanced in Full
When a new loan will not cover the old one, owners have a short list of choices, and each lands on equity investors differently. The analysis's author expects more paydowns, extensions and rescue capital through 2028.
- A cash-in refinance, where the owners contribute new money to pay the old loan down to a size the new lender will accept.
- An extension or modification, where the existing lender allows more time, often in exchange for a fee, a partial paydown or tighter control over cash.
- Rescue capital, such as preferred equity or a mezzanine loan from an outside party, which fills the gap but is paid before existing investors.
- A sale, which repays the loan but may happen at a lower price than the owners planned.
- Handing the property to the lender, in which case equity investors can lose their entire investment.
An extension can give income time to recover, although it delays any exit and may stop distributions while cash goes toward the debt. Rescue capital keeps the property but places new money ahead of existing investors in the distribution waterfall, the order in which cash is paid out.
How a Shortfall Reaches an Indian Investor
For an investor in India, the practical question is what the offering documents allow the sponsor, the firm that runs the deal, to do when a loan comes due. Some structures permit a capital call, a request for more money from existing investors. Others rely on outside capital or a sale. The documents also set out what happens to an investor who does not contribute, which can include a smaller share of the property, a process known as dilution.
A capital call also has a cross-border step. New money sent from India is a fresh remittance under the Liberalised Remittance Scheme for U.S. real estate, and it counts toward the same annual limit as the original investment. That limit is US$250,000 per resident individual per financial year, from 1 April to 31 March, according to the RBI's LRS FAQs. Tax collected at source can apply once remittances in a financial year cross ₹10 lakh, and it can be claimed back as a credit in the income tax return.
An investor who has already used most of the year's limit may struggle to respond to a call quickly, and the authorised dealer bank reviews each transfer. Because a capital call is made in dollars, its rupee cost depends on the exchange rate on the day the money is sent, which may differ from the rate at the original investment.
Questions to Ask About the Debt Before Investing
Refinancing risk is visible before an investment is made, provided an investor knows where to look. These questions follow the factors the CRED iQ analysis found mattered most.
- When does the loan mature, and does that date fall before or after the planned holding period ends?
- Is the interest rate fixed for the full term or floating, and if floating, is there an interest rate cap and when does it expire?
- What coverage and loan-to-value levels does the business plan assume at refinancing, and how much room is there if rates are higher?
- Do the documents allow capital calls, and what happens to investors who do not contribute?
- Does the deal hold reserves that could cover part of a shortfall?
- How has the sponsor handled loan maturities on earlier deals?
The answers do not remove the risk. They show how much of the outcome depends on interest rates and income at one future date.
Risks and Limits of This Analysis
The CRED iQ figures describe one sample, multifamily loans in Fannie Mae, Freddie Mac and commercial mortgage-backed securities deals, tested at interest rates as of October 2026. They do not cover loans held by banks or private lenders, or other property types such as net lease or self-storage. Rates may rise or fall before any loan matures, and a property's income can change in either direction.
The wider risks of private real estate remain whatever the debt looks like. Investors can lose capital, property values can fall, tenants can leave and distributions may not be paid. These investments are illiquid, often for years, and borrowing magnifies every loss because lenders are paid before equity investors. Currency movements can raise or lower the rupee value of any amount received, and concentration in one property or one sponsor increases the effect of a single problem.
A Loan's End Date Matters as Much as Its Rate
For close to a quarter of the maturing multifamily loans CRED iQ studied, owners would need to add money simply to keep the property financed, and the gap widened after the Federal Reserve's September increase. The loans most exposed were the ones signed when money was cheapest.
For an Indian investor weighing a private U.S. property, the debt is part of the asset. The maturity date, the rate terms and the room for a weaker market at refinancing deserve the same attention as the location and the tenants, and the guide to U.S. property types and market conditions sets out how those factors vary. Eligible investors can review how investing in U.S. real estate from India works on Raveum, including the property, sponsor, ownership structure, fees, risks and offering documents for each opportunity.
Frequently Asked Questions
What Is Refinancing Risk in Real Estate?
Refinancing risk is the chance that a property cannot replace its loan on acceptable terms when the loan matures. It arises when interest rates are higher, values are lower or income is weaker than when the loan was signed, so a new lender offers less than the amount still owed.
What Happens if a Commercial Property Cannot Refinance Its Loan?
The owners usually choose between adding new equity, agreeing an extension with the current lender, bringing in outside rescue capital, selling the property or handing it to the lender. Each option affects equity investors differently, and the last one can mean losing the entire investment.
What Is a Cash-In Refinance?
A cash-in refinance is when owners put in new money to pay an existing loan down to a size a new lender will accept. It keeps the property financed, but it needs fresh capital from the sponsor, the investors or both, and distributions may pause while it happens.
Can I Be Asked to Put More Money Into a Private Real Estate Deal?
You can if the offering documents allow capital calls. The documents also set out what happens if you do not contribute, which may include a smaller ownership share. Read these terms before investing, because they decide how a funding shortfall at refinancing would affect you.
Does a Capital Call From a U.S. Property Need a New LRS Remittance?
Yes. Money sent from India to meet a capital call is a fresh remittance under the Liberalised Remittance Scheme and counts toward the US$250,000 limit per financial year. Tax collected at source may apply above ₹10 lakh in a year, and your bank reviews each transfer.
How Can I Judge Refinancing Risk Before Investing?
Check when the loan matures, whether its rate is fixed or floating, what coverage and loan-to-value levels the plan assumes at refinancing and whether the deal holds reserves. Ask your CA and banker about the LRS and tax steps of any capital call, and treat the investment as illiquid and at risk.
This article is for general education only and is not investment, tax or legal advice. Rules change and depend on individual circumstances. Investing in private real estate involves risk, including loss of capital, illiquidity, falling property values, distributions not being paid and currency movements. Participation is limited to non-U.S. persons under SEC Regulation S and verified U.S. accredited investors under Regulation D Rule 506(c), and offerings on Raveum are not open to the general public.
