Commercial Property Loan Stress and Refinancing: Seven Signs You Should Refinance Early

Commercial property loan stress does not usually begin with a missed repayment.

More often, it develops quietly: an approaching loan expiry, a tenant exercising a break clause, a lender requesting updated financial information, a valuation coming in below expectations or an interest coverage ratio moving uncomfortably close to the lender’s minimum.

The borrower may still be meeting every repayment. However, the range of available refinancing options can already be narrowing.

This is particularly relevant in the current lending environment. In August 2026, the Reserve Bank of Australia maintained the cash rate at 4.35%, following 75 basis points of increases during the year. Although the cash rate was held steady, the RBA indicated that inflation remains elevated and future increases cannot be ruled out.

For commercial property investors and developers, this means debt costs, serviceability and lender appetite remain critical considerations.

Refinancing early does not necessarily mean leaving your existing lender. It means reviewing the position while there is still enough time to negotiate, restructure the debt or test alternative lenders from a position of strength.

Here are seven warning signs that your commercial property loan should be reviewed.

1. Your loan expires within the next 12 months

Commercial property loans generally have shorter contractual terms than residential mortgages. Even where repayments have been calculated over a longer amortisation period, the actual facility may expire after three or five years.

At expiry, the remaining balance usually needs to be:

• Refinanced with the existing lender;

• Repaid using another lender;

• Reduced through an equity contribution; or

• Repaid from the sale of the property.

An existing lender is not automatically required to extend or renew the loan. It may reassess the transaction using current lending policies, interest rates, valuations and serviceability requirements.

That can produce a very different result from the original approval.

For example, a property that comfortably supported its debt three years ago may now be affected by:

• Higher interest rates;

• Lower net rental income;

• Increased outgoings;

• A shorter remaining lease term;

• Changes to the tenant’s financial strength;

• A lower valuation; or

• More conservative lender policy.

Borrowers should ideally begin reviewing a commercial property facility between six and 12 months before expiry. More complex transactions—including development sites, specialised properties, substantial vacancies or secondary assets—may require even more time.

Waiting until the final month can turn an ordinary refinance into an urgent one.

2. Your interest coverage is becoming tight

Commercial property lenders assess more than the value of the property. They also examine whether its income can comfortably support the debt.

One common measure is the interest coverage ratio, or ICR. While calculations and minimum requirements vary between lenders, the ratio broadly compares the property’s net income with its interest expense.

Consider a property producing net income of $500,000 per annum:

• At annual interest costs of $300,000, the interest coverage is approximately 1.67 times.

• If annual interest costs rise to $400,000, it falls to 1.25 times.

• If income then falls to $450,000, coverage reduces further to approximately 1.13 times.

The loan balance has not changed, but the lender’s assessment of the risk may have changed considerably.

Some lenders also sensitise the interest rate rather than relying on the borrower’s actual rate. Others require the property to support principal repayments as well as interest.

Warning signs include:

• Rental income only narrowly covering interest;

• Increasing reliance on income from outside the property;

• Difficulty meeting principal repayments;

• Growing arrears in rates or statutory expenses;

• Using short-term debt to fund ordinary property expenses; or

• Repeatedly drawing on cash reserves to meet loan payments.

Tight serviceability does not automatically mean a refinance is unavailable. It may, however, affect the choice of lender, loan structure, leverage and pricing.

3. A major lease is approaching expiry

A property can be fully leased and still present a refinancing risk.

When a significant lease is approaching expiry, a lender may question whether the current income will continue. This is particularly important where one tenant contributes a large proportion of the property’s total rent.

The lender may consider:

• The remaining lease term;

• Renewal options and who controls them;

• The tenant’s trading and financial strength;

• Whether the rent is above or below market;

• Incentives required to secure a replacement tenant;

• The expected vacancy period;

• Leasing commissions and refurbishment costs; and

• The property’s suitability for alternative users.

A long-standing tenant does not guarantee renewal. Likewise, a lease extension agreed too late in the refinancing process may not leave enough time for documentation, valuation and lender approval.

Where a material lease expires within the next 12 to 24 months, it is worth reviewing the debt and leasing strategy together. In some cases, securing a renewal can materially improve the property’s valuation and financeability. In others, refinancing before the lease becomes too short may preserve a wider range of options.

4. The property’s value may have fallen

Commercial property values are influenced by rental income, market rents, lease terms, tenant quality, investor demand and prevailing capitalisation rates.

A property can maintain the same income but decline in value if market yields soften.

For example, a property producing net annual income of $500,000 may be valued at:

• $10 million at a 5% capitalisation rate;

• Approximately $8.33 million at a 6% capitalisation rate; or

• Approximately $7.14 million at a 7% capitalisation rate.

These figures are simplified illustrations, but they demonstrate how yield movement can affect value and gearing.

If the property was initially worth $10 million with a $6.5 million loan, the original loan-to-value ratio was 65%. If its value fell to $8.33 million while the debt remained similar, the LVR would increase to approximately 78%.

The borrower may still be making every payment, but refinancing the full balance with a conventional lender could become more difficult.

Potential warning signs include:

• Comparable properties selling at softer yields;

• Reduced demand for the asset class or location;

• A recent valuation below the purchase price;

• Falling rents or increased incentives;

• Building defects or significant capital expenditure;

• Planning or environmental issues; and

• Reduced land value or development feasibility.

Obtaining an indicative finance assessment before commissioning a formal valuation can help determine how different valuation outcomes may affect the refinance.

5. Your lender’s behaviour has changed

Borrowers sometimes assume that a lender’s concern will be communicated explicitly. In practice, the first signs may be less direct.

These can include:

• More frequent requests for financial information;

• Requests for updated rent rolls or leases;

• A new valuation being commissioned;

• Greater attention to loan conditions;

• Delays in approving additional funding;

• Refusal to release security;

• Reduced willingness to extend an interest-only period;

• Transfer of the relationship to a different team; or

• A shorter extension than the borrower requested.

These actions do not necessarily mean the lender intends to exit the relationship. Banks routinely review their exposures and request updated information.

However, they should not be ignored.

Lenders can change their appetite for particular industries, locations, asset classes or loan sizes. A transaction that fitted policy when originally approved may no longer sit within the lender’s preferred portfolio.

APRA reported that Australian authorised deposit-taking institutions held approximately $487.6 billion in commercial property exposures at March 2026, an increase of 8.7% over the year. While capital remains available, lenders continue to manage individual property, sector and borrower concentrations carefully.

A proactive borrower should understand the lender’s position before requesting a formal renewal.

6. You are relying on short-term solutions to meet long-term obligations

Short-term finance can be a valuable tool when it has a clear purpose and credible exit strategy.

It may assist with:

• Settling an acquisition before a longer-term facility is ready;

• Completing a sale;

• Undertaking urgent capital works;

• Finalising a development;

• Releasing another property;

• Resolving an estate or partnership matter; or

• Allowing time to secure or renew a tenant.

The danger arises when short-term debt is repeatedly extended or used to cover a structural cash-flow shortfall.

Warning signs include:

• Paying commercial property interest using credit cards or unsecured debt;

• Taking multiple second mortgages without an overall refinance strategy;

• Capitalising interest without a realistic repayment event;

• Relying on an uncertain sale price;

• Using tax or supplier arrears as working capital; or

• Assuming property values will rise enough to solve the problem.

Short-term funding should create time to complete a defined strategy. It should not merely postpone an unresolved issue.

Before entering bridging or private funding, borrowers should understand the total cost, default provisions, extension conditions and the evidence supporting the proposed exit.

7. Your circumstances no longer match the original loan structure

A facility that was appropriate when approved may no longer suit the borrower or the property.

Common examples include:

• A development loan attached to a completed investment property;

• A principal-and-interest facility placing unnecessary pressure on cash flow;

• Several properties cross-collateralised under one lender;

• An owner-occupied property that is now leased to a third party;

• A passive investment loan attached to a future development site;

• A facility that restricts distributions or further acquisitions;

• An interest-only period coming to an end; or

• Personal guarantees and additional security that may no longer be necessary.

Refinancing can sometimes do more than replace one interest rate with another. It may allow the borrower to:

• Extend the loan term;

• Reset or extend an interest-only period;

• Separate multiple properties;

• Release surplus security;

• Consolidate or simplify debt;

• Obtain funds for improvements or another acquisition;

• Align repayments with the property’s cash flow; or

• Move to a lender with a more suitable appetite.

The lowest advertised rate is not always the best outcome. Structure, flexibility, security, covenants, fees and the lender’s ability to support the borrower’s future plans can be equally important.

What lenders examine when refinancing commercial property

Every transaction is different, but lenders will commonly assess:

The property

This includes its location, condition, use, valuation, marketability and any specialised characteristics.

Rental income

Lenders generally review the rent roll, leases, outgoings, incentives, arrears and net operating income.

The tenants

The strength, diversity and concentration of the tenant base can materially affect the assessment.

The borrower and guarantors

Lenders may require financial statements, tax returns, asset and liability statements, credit information and details of relevant experience.

Loan-to-value ratio

The acceptable LVR depends on the property, location, borrower, income and lender. A specialised or vacant property may attract a lower acceptable LVR than a well-located, securely leased asset.

Serviceability

The lender may assess actual interest costs, a higher sensitised rate or principal-and-interest repayments.

The loan purpose and exit strategy

This becomes particularly important for short-term, transitional or development-related facilities.

What to prepare before approaching lenders

A well-prepared refinance application generally produces a better and faster process.

Useful information includes:

• The current loan balance and facility expiry date;

• Existing interest rate, repayments and loan conditions;

• Full property details;

• Current valuation, if available;

• Rent roll and executed leases;

• Details of lease expiries and options;

• Property income and expenses;

• Borrower and guarantor financial statements;

• Tax returns and notices of assessment where relevant;

• Statement of assets and liabilities;

• Background on any late payments or adverse credit issues;

• The requested loan amount and purpose; and

• A clear explanation of the borrower’s future strategy.

Problems should be addressed directly. Lenders are generally more comfortable with a clearly explained issue and credible solution than an inconsistency discovered late in the approval process.

Why refinancing early creates better options

Time is one of the most valuable assets in a commercial refinance.

Starting early allows the borrower and adviser to:

1. Review the existing facility and lender requirements.

2. Identify valuation or serviceability risks.

3. Correct missing financial information.

4. Address upcoming lease expiries.

5. Compare bank, non-bank and private lending options.

6. Negotiate with the existing lender.

7. Allow time for valuation, credit approval and legal documentation.

8. Develop a backup strategy if the preferred lender cannot proceed.

When refinancing is left until the last minute, the borrower may be forced to prioritise speed over price and structure.

By contrast, an early review can reveal that the existing facility remains competitive and no change is required. That is still a valuable outcome: the borrower gains clarity and avoids entering negotiations without knowing the alternatives.

How CapStack can assist

CapStack works with commercial property investors, developers and business owners to structure and arrange finance across a broad panel of bank, non-bank and private lenders.

We can assist by:

• Reviewing the existing facility and upcoming expiry;

• Assessing likely lender serviceability and LVR constraints;

• Identifying potential problems before a formal application;

• Comparing suitable lending structures;

• Presenting the transaction clearly to lenders;

• Managing valuations, credit questions and documentation; and

• Developing alternative options where a conventional refinance is not immediately available.

The objective is not simply to replace one loan with another. It is to establish a finance structure that reflects the property, its income and the borrower’s broader strategy.

Speak to CapStack before your facility expires

If your commercial property loan expires within the next 12 months - or you are concerned about serviceability, valuation, vacancies or lender appetite - now is the time to review it.

The earlier the process begins, the more opportunity there is to protect your negotiating position and secure an appropriate solution.

Contact CapStack for a confidential review of your existing commercial property facility and refinancing options.

Frequently asked questions

How early should I refinance a commercial property loan?

It is generally sensible to begin reviewing the facility six to 12 months before expiry. Complex properties, material vacancies, expiring leases or unusual borrower circumstances may require a longer timeframe.

Can I refinance if my property value has fallen?

Potentially. The available loan amount will depend on the updated valuation, income, loan balance and lender. Options may include contributing equity, reducing the debt, using additional security or approaching a lender with a different risk appetite.

Can I refinance a commercial property with a vacancy?

Yes, but the vacancy may affect serviceability, valuation and acceptable leverage. Lenders will consider the property’s location, reletting prospects, remaining tenants, cash reserves and the borrower’s ability to cover the shortfall.

Should I approach my existing lender first?

Not necessarily. It can be useful to understand alternative options before entering renewal negotiations. This provides a benchmark for assessing the existing lender’s offer and protects against unexpected policy or valuation issues.

Is a non-bank commercial property loan always more expensive?

No. Pricing depends on the transaction, leverage, property, borrower and lender. Some non-bank lenders may offer competitive pricing or greater flexibility. The total facility—including fees, covenants, repayment structure and security—should be considered.

What happens if my commercial loan reaches its expiry date?

Unless the lender grants an extension, the outstanding balance becomes due. Borrowers should not assume that an extension will be automatic, even if every repayment has been made.

Can CapStack assist with an urgent refinance?

Yes. Depending on the circumstances, CapStack can assess bank, non-bank, private and bridging options. However, starting earlier will generally provide a wider choice and improve the borrower’s negotiating position.

Disclaimer: This article contains general information only and does not constitute financial, legal, taxation or investment advice. Lending policies, interest rates, fees and eligibility requirements vary between lenders and can change. Borrowers should obtain advice appropriate to their circumstances before making a financial decision.