How to Refinance a Commercial Property

Step 1: Define the Refinance Objective

Start with the result the new loan must achieve. Required payoff, cash-out needs, renovation proceeds, desired payment and ownership timeline determine which lenders and structures are relevant.

Review the existing note for maturity, extension rights, lockout, defeasance, yield maintenance or step-down penalties. Those obligations affect both timing and the net benefit of refinancing.

Step 2: Build the Property and Sponsor Package

Lenders need a current picture of property operations and borrower capacity. The package should explain material changes in occupancy, rent, expenses, tenants or capital condition since the prior financing.

For larger $5M to $100M requests, a concise transaction summary helps credit teams understand the objective before they review detailed files.

• Current rent roll and trailing operating statements
• Two to three years of historical property financials
• Existing debt statement and requested sources and uses
• Capital expenditure history and planned improvements
• Borrower financial statement, liquidity and real estate schedule

Step 3: Test Value, NOI and Loan Proceeds

Estimate refinance value using supportable net operating income and market capitalization assumptions, then test proceeds against LTV, DSCR and debt yield. This identifies whether the request is likely to pay off existing debt and meet any additional capital objective.

A third-party appraisal may differ from the borrower’s estimate. Maintaining a proceeds cushion or backup plan reduces the risk that a valuation change prevents closing.

Step 4: Compare Lenders and Term Sheets

Compare rate, proceeds, amortization, term, recourse, reserves, prepayment and closing conditions. Confirm whether the proposal is approved by credit or remains subject to a later committee decision.

The best fit also depends on timing and property type. A lender with direct experience in the asset class may identify issues earlier and structure around them more effectively.

Step 5: Manage Diligence Through Closing

After selecting a lender, the process typically includes appraisal, environmental review, title, insurance, legal documentation and final verification of property and sponsor information. Assigning responsibility for each item keeps the timeline visible.

Borrowers should monitor payoff statements, entity documents, closing conditions and required equity. Unresolved title, survey, lease or organizational issues can delay even an otherwise approved loan.

• Confirm third-party report ordering and delivery dates
• Track lender questions and document responsibility
• Coordinate existing lender payoff and release documents
• Review final loan documents against the approved business terms