How Do You Refinance a Commercial Property?
Refinancing a commercial property involves replacing your existing mortgage with a new loan — either to lower your rate (rate-and-term), pull cash from equity (cash-out), or transition from bridge/construction financing to permanent debt. The process takes 45-90 days and requires current rent rolls, 2-3 years of operating statements, a commercial appraisal ($3,000-$8,000+), Phase I environmental assessment, and DSCR of 1.20-1.25x minimum. Timing depends on your existing prepayment penalty structure, current rate environment, and hold period strategy.
Key Facts
Rate-and-Term vs. Cash-Out Refinance
A rate-and-term refinance replaces your existing loan with a new one at a lower rate, shorter term, or better structure — without increasing the loan balance. The goal is reducing debt service cost. A cash-out refinance replaces the existing loan with a larger one, and the difference is paid to you at closing. Cash-out proceeds fund renovations, acquisitions, debt consolidation, or portfolio expansion. Cash-out LTV is typically capped at 65-75% of appraised value, with the specific maximum depending on property type and lender.
The Refinance Process: Step by Step
1) Initial submission: property summary, current rent roll, 2-3 years of operating statements, personal financial statement, and schedule of real estate owned. 2) Preliminary term sheet: the lender reviews and issues indicative terms within 1-7 days. 3) Appraisal: a commercial MAI-designated appraiser completes an income-approach appraisal (3-6 weeks, $3,000-$8,000+). 4) Underwriting: full credit review including Phase I environmental, title, lease abstracts, and DSCR analysis (2-4 weeks). 5) Closing: commercial title company closes the transaction and funds within 1-3 days.
When Does Refinancing Make Financial Sense?
The decision depends on four variables: the rate differential (current market vs. your note rate), your prepayment penalty cost, the remaining term on your existing loan, and your hold period strategy. If your existing loan has no prepayment penalty, refinancing makes sense when market rates are 50+ basis points below your note rate. If your loan carries yield maintenance or defeasance, calculate the penalty cost and compare it to cumulative savings over the remaining term. If the savings don't exceed the penalty, wait — or plan your refinance to coincide with the penalty's expiration.
Bridge-to-Permanent Refinance
One of the most common commercial refinance scenarios is transitioning from bridge financing to permanent debt. After acquiring and stabilizing a value-add property with a bridge loan (12-36 months, 8-12% rates), the property qualifies for permanent financing at 6.5-8% with 20-30 year amortization. The permanent loan pays off the bridge, reduces the rate by 200-400+ basis points, extends the term, and locks in long-term cash flow certainty. Timing the bridge-to-permanent transition requires the property to be stabilized — 90%+ occupancy with documented NOI supporting the required DSCR.
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From the Blog
Further Reading
CommercialCommercial Cash-Out Refinance: How Savvy Investors Tap Equity to Renovate, Rehab, and Expand Their Portfolios
Your commercial property has probably appreciated more than you think — and a cash-out refinance lets you put that equity to work without selling the asset. Here's how smart investors use low-cost, already-owned equity to fund renovations, rehab value-add properties, and grow their CRE portfolios in 2026.
CommercialNo Prepayment Penalty: Why Smart Commercial Borrowers Are Positioning for a Declining-Rate Environment
Yield maintenance, defeasance, and step-down penalties can cost hundreds of thousands of dollars when you refinance a commercial loan early. In a declining-rate environment, borrowers locked into penalty-heavy structures are watching cheaper capital pass them by. Here’s how no-prepayment-penalty commercial loans let you capture every basis point of savings when rates fall.
CommercialHow a 30-Year Amortization Unlocked $500K in Cash-Out Proceeds on a Self-Storage Refinance
A self-storage operator needed $500,000 to build additional units — but a 20-year amortization killed the DSCR. Extending to a 30-year am changed the math entirely. Here’s the full breakdown.