The competition for commercial loans from banks and institutional lenders means that commercial real estate (CRE) owners with maturing debt should start planning their next step at least a year out from the maturity date of the loan. According to reports, approximately 11,000 commercial mortgage-backed securities (CMBS) will mature in the next three years.

Before new financing can be arranged, the owner must decide whether he or she wants to hold on to the property or sell it in the foreseeable future. If you want to hold on to the property as a long-term investment and the current lender is unwilling or unable to extend or renew the existing loan, then seeking out lower-interest refinancing options through a conventional lender is a most likely the best option.

If you plan to sell the property (either immediately or in a couple of years), then there are two main options:

1. Refinance with a long-term, fixed-rate loan that does not have prepayment penalties.
2. Arrange short-term bridge financing with a hard money or private lender.

The first option might be the most desirable for the CRE owner, but it could limit the buyer pool when the property is put on the market if buyers need a different price to debt balance ratio than the existing loan allows. A bridge loan grants the CRE owner more time and freedom to arrange the sale of the property in exchange for slightly higher interest rates. Many private lenders are also willing to grant one-year extensions on bridge loans if the sale takes longer than expected.

As a CRE owner, if you plan to refinance with any type of loan, there are things you should do to prepare the property for refinancing:

1. Reach a leased-up rate of at least 85% to 90% as properties with high vacancy rates are more difficult to obtain financing for.
2. Stagger the expirations of tenants’ leases so that they can’t all leave en masse and drastically reduce the occupancy rate.
3. Maintain the property in good condition or make improvements to it if maintenance was previously deferred.

Hard money loans can help bridge any financing gaps while you are in the process of fulfilling the above conditions. Private lenders are more willing to make loans against properties that currently have high vacancy rates if the owner can show that he or she has a plan to increase occupancy on the property. In addition, some private lenders are willing to roll funds to cover property improvements or interest payments into the loan amount so that the property can be rehabilitated without the owner having to pay for it all out of pocket.