The Impact of Loan Maturations on Commercial Lenders

by
Ren Hayhurst
| March 13, 2025

Topics: Banks, Commercial Lending, Credit Unions

What Banks and Credit Unions Need to Know

As we look toward the coming year, one of the biggest challenges commercial lenders will face is the significant wave of loan maturities. More than $500 billion in commercial loans are expected to mature in the near future, particularly for banks and credit unions. Understanding the reasons behind this spike and how lenders can navigate these challenges is crucial for staying competitive in an uncertain market.

Why Are So Many Loans Maturing Now?

A large portion of this $500 billion in maturing loans stems from the wave of financing that occurred between 2014 and 2019. During this period, properties that were emerging from the Great Recession saw a rush of new development and refinancing, often backed by 10-year loans. The real estate market was booming, with low-interest rates creating favorable conditions for borrowing. Commercial loans were often secured for multi-family, office, residential, and retail properties, as investors took advantage of low rates to refinance and expand their portfolios.

The timing of these loans is crucial: properties developed or refinanced during the 2014-2019 period are now reaching the end of their 10-year loan terms. As a result, we’re seeing a wave of maturities as these loans reach their natural conclusion.

What Does This Mean for Lenders?

For banks and credit unions, this wave of loan maturations presents both risks and opportunities. While many borrowers may face challenges in refinancing due to current market conditions such as higher interest rates and inflation there is also a significant opportunity to capitalize on the needs of borrowers who might be unable to meet their loan obligations under these new circumstances.

For example, many borrowers are seeking extensions or modifications to avoid refinancing at higher rates. This is particularly true in industries like office spaces, which were once considered a safe bet but have been hit hard by the shift to remote work and changing market dynamics. Multifamily and retail properties are also experiencing shifts in demand, further complicating refinancing efforts.

The question for banks and credit unions is: How can they respond?

Should Lenders Be Concerned?

While loan maturations present some risks, they also offer opportunities for banks and credit unions to strengthen relationships with their clients. The key is managing the situation carefully. For many borrowers, refinancing may no longer be a viable option due to higher interest rates and less favorable market conditions. As a result, these borrowers may need to renegotiate terms or seek extensions.

In some cases, lenders might view these requests as a negative, especially if borrowers are unable to meet the terms of their original agreements. However, for lenders willing to work with their clients, these maturations can foster deeper relationships and even allow for new lending opportunities in a less competitive environment.

How Can Lenders Take Advantage of This Coming Wave?

Offer Extensions or Loan Modifications:
Banks and credit unions can work with borrowers who need more time to refinance by offering loan extensions or modifications. This not only helps borrowers weather the current economic storm but also allows lenders to maintain a relationship with these clients, securing their business for the future.
Look for New Financing Opportunities:
While refinancing options may be limited, lenders can explore offering new lines of credit or additional funding to borrowers looking to make improvements or changes to their properties. This could include financing for building upgrades, energy efficiency improvements, or other value-add projects that can enhance the property’s appeal in the current market.
Focus on Asset Management:
With maturing loans, it’s crucial for lenders to be proactive in assessing the health of their loan portfolios. Regular property inspections, reevaluations of loan-to-value (LTV) ratios, and tracking of debt service coverage ratios (DSCR) can help identify potential issues early on and allow lenders to engage with borrowers before problems arise.
Understand the Market Dynamics:
In the wake of COVID-19 and with the ongoing inflationary environment, commercial real estate is undergoing shifts. Certain sectors, like office space, have struggled with lower demand, while others, like multifamily housing, and grocery store anchored properties continue to perform well. Understanding these dynamics will help lenders make informed decisions when it comes to loan extensions and new financing.
Be Prepared for Potential Defaults:
While lenders can offer extensions or modifications, it’s important to be prepared for the possibility of defaults. Ensuring that there are clear terms in place for managing defaults, such as updated collateral or additional reserves, can help lenders mitigate risk in an unpredictable environment.

The upcoming wave of loan maturations presents both challenges and opportunities for commercial lenders. By being proactive, offering flexible solutions, and maintaining strong relationships with borrowers, banks and credit unions can navigate this period effectively. As the market continues to evolve, those who adapt quickly to changing conditions will be best positioned to capitalize on the opportunities presented by this maturation wave.