When the Loan Comes Due – June 1, 2026
The question of whether a commercial property loan faces default has a lot to do with secular headwinds
The recent two-part Connect CRE webinar on distressed commercial real estate debt, hosted by Transwestern’s Steve Pumper, cited the sheer volume of debt coming due this year: $520 billion, with roughly one-tenth of that amount considered at risk. Readers of our weekly “Return to Lender” feature are likely to notice that not a week passes without at least one report of a property’s securitized debt transferring to special servicing, often due to failure to pay off the loan at maturity.
Indeed, Kroll Bond Rating Agency reported recently that the KBRA Loan of Concern (K-LOC) Index, its primary metric for measuring stress in the CMBS conduit market, increased to 26.86% in March 2026 from 26.71% in February 2026. KBRA identified 81 new loans as K-LOCs with an unpaid principal balance of $1.36 billion.
So what’s the near-term prognosis, then? Will we be seeing an increase in the percentage of loans facing default? In the view of Fitch Ratings, that depends. A new report from the rating agency notes that refinancing activity is continuing to strengthen this year, although secular headwinds are creating sharp distinctions across property sectors.
The overall refi or repayment rate rose to 78% in the first quarter of 2026, up from 75% in 2025 and 68% in 2024. “Refinancing rates differed by property type. industrial loans (100%) and multifamily loans (96%) led, followed by hotel loans at 86%. Retail and office loans lagged at 62% and 59%, respectively,” Fitch reported.
Drilling down into the sectors shows that the outlook for refinancing can vary by individual property as well as property type. KBRA recently highlighted what it takes to successfully refinance office properties: stronger credit metrics and reduced leverage. Brookfield managed that in securing a $900-million refi of 225 Liberty St. in Lower Manhattan earlier this year. Office properties with weaker credit profiles? Not so much.
Fitch expects refinancing projections through the end of 2026 to remain in line with 2025, as the modest increase seen in Q1 is likely to be offset over the rest of the year. As a result, its delinquency forecast for the year is unchanged.
“Office refinancing remains constrained by structural vacancy, weakened demand and the ongoing sector correction,” according to Fitch. “Retail has been disproportionately affected by regional malls, where large-balance loans are struggling to repay at maturity, often leading to restructuring and ownership changes. Hotel has been resilient but is expected to moderate as post-pandemic revenue tailwinds fade, operating cost pressures intensify and performance diverges across demand segments.”
For the remainder of 2026, Fitch projects office and retail repayment rates will stay on pace, supported by recovering office fundamentals and resilient consumer demand. Meanwhile, hotel refinancing rates are expected to soften due to tightening margins and declining NOI trends following peak post-pandemic performance. Fitch’s projections incorporate refinance stress testing on 2026-2027 maturing conduit and Freddie Mac loans, assessing performance against debt service coverage ratio and loan-to-value thresholds at current cap rates, interest rates and recent CMBS transactions.
That being said, there are a couple of factors to keep in mind. One is that while CMBS performance is a useful measure of the overall stability of the CRE debt market, it’s not the whole ball game. Another is that, in contrast to what we saw following the 2008 global financial crisis, the debt markets aren’t shutting down now. Far from it, in fact.