Commercial Real Estate Refinancing in Phoenix

Commercial real estate refinancing in Phoenix is back at the top of the agenda for any owner with a loan coming due in the next 18 months. On October 28, the Federal Reserve held its benchmark rate at 3.75% to 4% in a 10–2 vote, and both dissenters wanted another hike. That pause came just six weeks after the September increase, the Fed’s first rate hike since July 2023.

This summer we looked at what rising long-term yields were doing to Phoenix property values. The question in front of owners has changed since then. It is no longer “when do rates come down?” It is “how do I refinance, buy or hold if rates don’t come down before my loan matures?”

Here is the tension. Most Phoenix property types are performing well. Industrial vacancy is falling, retail is tight and medical office is healthy. But a loan written in 2019 or 2021 doesn’t care about vacancy trends. It cares about the coverage ratio a lender will underwrite today.

Five things every Phoenix owner and buyer should know right now:

The Fed is probably not done. After the October hold, markets priced roughly a 68% chance of a December hike.
Long-term rates matter more than the Fed. The 10-year Treasury, which prices most fixed-rate commercial loans, sits near 4.9% and is about 76 basis points higher than a year ago.
The maturity wall is still large. The Mortgage Bankers Association counts $875 billion of commercial and multifamily debt maturing in 2026 and another $652 billion in 2027.
Recent loans are the most exposed. Debt written at peak prices in 2021 and 2022 is far more likely to come up short at refinance than older loans.
Pressure on borrowers creates openings for buyers. Owners who can’t close a refinance gap will recapitalize, bring in partners or sell, and that will be selective, not a fire sale.

This article covers what has changed since September, where refinancing risk sits across the Phoenix market by property type, and how owners and buyers should plan for the next 12 months.

Current Market Context: Higher for Longer, Round Two

The Fed raised rates by a quarter point on September 17, taking the federal funds range to 3.75%–4%. Chair Kevin Warsh pointed to stronger economic activity and persistent inflation. Many owners had been waiting on cuts for two years, so the move reset expectations across the market.

October’s hold did not soften that message. Governor Lisa Cook and Cleveland Fed President Beth Hammack both voted for another quarter-point increase. In early November, after a strong jobs report, futures markets put the odds of a December hike at around 68%.

The bigger story for commercial real estate is the 10-year Treasury. It closed at 5.085% on October 16 and was hovering around 4.88% on November 10. Fixed-rate commercial mortgages are priced off that benchmark plus a spread, so a 10-year near 5% puts most permanent loans in the 6.5% to 7%+ range.

Capital has not disappeared. U.S. investment sales reached $143 billion in the third quarter, the most for any third quarter since 2022, according to Avison Young. But Avison Young also cut its full-year forecast to $520 billion. For commercial real estate refinancing in Phoenix, that means money is available. It just costs more, and lenders are sizing loans more conservatively.

Commercial Real Estate Refinancing in Phoenix: Planning for a December Rate Hike and the 2027 Debt Peak

Why the refinance math broke. Many owners who locked in roughly 4% debt are now refinancing into loans closer to 7%. That spread changes how much a lender will lend on the same property, and not by a little.

Here is a simplified, interest-only illustration. A property with $750,000 of net operating income carries a $10 million loan at 4%, which is $400,000 a year in interest and a comfortable 1.88x debt service coverage ratio (DSCR). Refinance that same loan at 7% and interest jumps to $700,000. Coverage falls to 1.07x, well below the 1.25x most lenders require.

To hit 1.25x at 7%, the lender can only support about $600,000 of annual debt service, which is roughly an $8.57 million loan. The owner has to bring about $1.43 million of new equity to the closing table, and nothing about the building got worse.

Every quarter point has a price tag. CRED iQ re-sized $136 billion of agency and CMBS apartment loans maturing between October 2026 and December 2028. It found 31% of that balance needs $6.8 billion in fresh capital to refinance. The September hike alone pushed 178 more loans below a 1.25x coverage threshold. Each additional quarter-point increase adds roughly $1 billion to the shortfall.

Vintage matters more than location. The same CRED iQ analysis shows 46% of 2021–2022 apartment loans need fresh equity, compared with just 15% of loans written in 2016–2018. Older loans have had years of rent growth to catch up. The 2021–2022 loans were sized at peak prices with coupons around 3.35%, and they have nowhere to hide.

The size of the wall depends on who’s counting. The MBA reports $875 billion of maturities in 2026 and $652 billion in 2027. S&P Global, using a broader measure, projected in September 2025 that maturities would peak at about $1.26 trillion in 2027. The numbers differ because they count different loan pools and extensions. Both point to the same conclusion: a heavy volume of debt has to be refinanced in a rate environment no one planned for.

Extensions are running out. For two years, lenders extended loans rather than force sales. The cracks show in the data. In June, the headline CMBS delinquency rate was 7.35%, but the CRE Finance Council put the effective rate at 9.53% once matured loans that couldn’t pay off were included. That 218-basis-point gap is refinancing friction in plain sight.

Local Arizona Impact: Where Phoenix Refinancing Risk Really Sits

Phoenix enters this cycle from a position of strength. The metro reached 2.5 million jobs in the third quarter after adding 24,000 jobs over the past year, according to Cushman & Wakefield. CoStar reported that Phoenix commercial sales volume rose 13% in 2025 to about $14 billion, the second straight year of accelerating deal flow.

That strength is uneven, though. Commercial real estate refinancing in Phoenix looks very different depending on what you own and when you financed it.

Industrial: the easiest refinance in the Valley. Phoenix industrial vacancy fell 300 basis points year over year to 10.3%, the largest decline in more than four years. Kidder Mathews reports direct asking rents up 5% year over year, with Glendale absorbing about half of the metro’s third-quarter demand. Rising income is the best defense against higher rates. Industrial sales topped $1 billion for the eighth consecutive quarter in Q2, per CoStar, so lenders and buyers are both active.

Retail: strong overall, watch the small shops. Kidder Mathews puts the average Phoenix retail cap rate at 6.3%, down 80 basis points from a year earlier, a sign of how much investors want Valley retail. But Marcus & Millichap reports that small-format vacancy rose about 60 basis points while larger centers tightened. Lenders will look hard at the shop-space rent roll in Gilbert, Chandler, Queen Creek and San Tan Valley strip centers.

Medical office: lender-friendly, with a cost-of-capital catch. CBRE puts Phoenix medical office vacancy at 11.9%, with six straight quarters of positive absorption. Nationally, CBRE reports medical outpatient investment sales up 13.4% in Q3 and an average cap rate of 7.15%. Lenders like healthcare tenants, but at today’s debt costs, many medical office deals are borderline accretive at best.

Office: the hardest conversations. Phoenix total office vacancy is 23.7%, and Class A vacancy is 28.3%, according to Kidder Mathews. Owners of older or half-empty buildings in Downtown, Tempe and the Camelback Corridor face the steepest refinance gaps. Many of those loans will be resolved through discounted sales or lender-led restructurings rather than clean refinances.

Multifamily: the 2021–2022 problem. Phoenix was one of the busiest apartment markets in the country during 2021 and 2022, and supply followed. The 46,400-unit North Phoenix submarket is still adjusting to elevated new supply, as PCCP noted when it refinanced a 335-unit property there in January. Those peak-vintage loans are where the strain on commercial real estate refinancing in Phoenix is most likely to show up first.

Looking ahead, the MBA expects commercial mortgage originations to grow from $838 billion in 2026 to $888 billion in 2027. That lending will flow to Phoenix industrial, retail and healthcare. The question for each owner is whether their asset qualifies on today’s terms.

National Impact

Nationally, refinancing pain is concentrated in office and in apartments financed at the top of the market. CRED iQ found that 70% of maturing apartment balances fall short in San Francisco, 55% in Atlanta and 51% in Denver, compared with just 13% in Chicago. Sun Belt markets that built heavily are taking the hardest hit.

CMBS hard maturities rose to $4.70 billion in October from $2.74 billion in September, according to Trepp, and severe refinance risk is shifting toward multifamily and hospitality. Lenders, meanwhile, are moving capital toward sectors with stronger fundamentals, which helps industrial and healthcare and hurts everything else.

The national lesson for Arizona is simple. Strong local fundamentals help, but they don’t erase a capital structure built for 3.5% money.

Key Risks

A December hike. Another quarter point would push more loans below lender coverage thresholds and widen equity gaps across every property type.
Sticky long rates. Even if the Fed pauses, a 10-year near 5% keeps fixed-rate debt expensive.
Floating-rate bridge loans. Borrowers whose rate caps are expiring face sharply higher payments and costly cap renewals.
Softening labor market. Arizona’s unemployment rate reached 4.9% in August, up 50 basis points year over year. Slower hiring would hit small-shop retail and Class B office tenants first.
Valuation lag. Appraisals catch up to higher rates slowly. An owner who expects a 2022 value at refinance is likely to be disappointed.

Key Opportunities

Good assets with bad capital structures. The best buying opportunities over the next 18 months will be well-leased properties whose owners simply can’t close a refinance gap.
Rescue and preferred equity. Investors with cash can fill the gap between a smaller new loan and the old balance, often at attractive returns with a cushion beneath them.
Assumable low-rate debt. A property with assumable fixed-rate financing below today’s market is worth more to a buyer, and sellers should market it that way.
SBA Owner-users financing. Medical practices and business owners who occupy their buildings can often borrow on better terms than investors. Our breakdown of the new SBA loan rules for Phoenix commercial real estate covers how.
Conventional owner-user financing. Owner-users can also go the conventional route. Rosemary McClelland at First Citizens Bank offers aggressive rates and terms with up to 85% loan-to-value. You can find her contact information on our AZ commercial real estate investment services page.
Sale-leasebacks. Healthcare operators and other owner-occupants can sell their buildings, sign long-term leases and avoid a costly refinance altogether.

The ICRE Perspective

What we’re seeing in the market is a waiting game that is getting expensive. Many of the owners we talk to with 2027 maturities have been holding off on calling their lender, expecting rates to drop first. September changed that math, and October didn’t change it back.

The most common mistake we see in commercial real estate refinancing in Phoenix is underwriting the new loan at hoped-for rates. If a deal only works at 5.5% money, it doesn’t work today. We’d rather have that conversation 18 months before maturity than six weeks before, when the options narrow to a discounted sale or a painful capital call.

What investors may be missing is how selective the opportunity will be. This won’t look like 2010, with distress everywhere. Phoenix industrial, neighborhood retail and medical office have too much demand behind them. The openings will come one loan at a time, from owners of solid properties who financed at the wrong moment. Buyers who build relationships with lenders and owners now will see those deals before they hit the market.

The risk we think is underestimated is in suburban strip retail and 2021–2022 apartment deals. Both look healthy at the market level. At the individual loan level, some of them are a December hike away from needing new equity.

Owner and Investor Takeaways

Map every maturity through 2027 now. Any loan coming due before the end of 2027 needs a written plan by the first quarter.
Underwrite at today’s rates, then add 50 basis points. If the deal only works with a rate cut, plan for an equity contribution or a sale.
Know your DSCR and debt yield before your lender does. Those two numbers will decide how large a loan you can get.
Talk to your lender early. Extensions, partial paydowns and modifications are much easier to negotiate a year out than a month out.
Get a current valuation. A broker opinion of value tells you whether to refinance, recapitalize or sell while you still have choices.
Buyers: target fundamentals, not headlines. Look for well-leased industrial, retail and medical office properties with 2021–2022 debt, not distressed buildings with no demand behind them.

Conclusion

The strategic takeaway is that commercial real estate refinancing in Phoenix is now a capital-structure problem more than a real estate problem. The Valley’s fundamentals are some of the strongest in the country. The pressure comes from loans sized for an interest-rate world that no longer exists.

Looking ahead, we expect the Fed to stay cautious into 2027 and long rates to remain near current levels. Deal volume should keep growing, but the gains will go to owners and buyers who plan around today’s cost of money rather than waiting for a better one.

The action item is simple. If you own a Phoenix commercial property with a loan maturing before the end of 2027, run the refinance math at today’s rates this quarter, and talk to an advisor about your options while you still have time to choose.

How ICRE Can Help

At ICRE Investment Team, we specialize in helping investors, healthcare providers, and developers navigate the commercial real estate landscape — including what the Fed’s September rate hike meant for Phoenix owners. Whether you’re exploring your first medical office investment, evaluating a portfolio opportunity, or looking to understand how healthcare campuses fit into a broader CRE strategy, our team has the market knowledge and relationships to help you move forward with confidence.

Healthcare real estate is not a passive play. It requires the right guidance, the right location analysis, and the right understanding of tenant needs. That’s exactly what we bring to every transaction.

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