Closing the Refinance Gap in Today’s Market

February 2026

Loans originated in a low-rate, high-leverage environment are now meeting a market defined by higher borrowing costs, lower proceeds, and more conservative underwriting standards.

Deals are still getting done. What’s changed is not the availability of capital - it’s the structure.

Refinancing today is less about maximizing proceeds and more about certainty of execution, optimizing structure, and preserving optionality.

Bridge-to-Bridge: Buying Time When the Story Is Still Intact

For assets that are still stabilizing, lease-ups that are progressing, or repositioning plans that remain fundamentally sound, bridge-to-bridge executions have become a primary solution. In many cases, the original bridge loan assumed a refinance into permanent debt at a higher valuation and in a lower rate environment. Today’s market may not yet support that take-out. Fortunately, lenders are participating in bridge-to-bridge financings to allow the business plan to mature. Today’s bridge lenders are underwriting conservative assumptions, validating in-place market rental rates, and requiring stronger debt yield metrics. Yet bridge refinances without new equity infused remain viable where performance supports the story.

The key shift is this: refinances and extensions are no longer based on hope; they are based on demonstrated progress and a credible path to stabilization.

Right Sizing the Loan: Resetting Leverage for the New Cycle

In certain cases, the refinance solution in today’s market includes lenders mandating paydowns, additional credit support, and/or beefed-up reserves to reduce the risk as needed. Lower leverage and a resized capital stack are increasingly the baseline, not the exception. Where 70–75% loan-to-value structures were common in the prior cycle, most lenders today are comfortable in the 60–65% range, with debt yield requirements frequently in the 9%+ range. As a result, borrowers may face a proceeds shortfall that must be addressed through an incremental equity contribution.

While not always welcome, this approach carries important long-term benefits. Lower leverage reduces refinancing risk, improves cash flow durability, and positions the asset more favorably for future capital events. Rather than stretching structure or layering on expensive subordinate capital, many sponsors are choosing to strengthen their balance sheets and preserve flexibility. In today’s environment, discipline is increasingly being rewarded.

Why These Strategies Are Working

Both bridge-to-bridge extensions and right-sized refinances share common traits: realism and alignment with lender risk parameters. Lenders today are not avoiding transactions; they are avoiding aggressive assumptions. Loan requests grounded in current values, supportable NOI, validated in-place market rental rates, and sound exit scenarios are clearing credit committees. Those built around prior-cycle expectations are not.

Sponsors who present transparent data, realistic projections, and a willingness to share risk are finding capital available…even though the structure may look different than it did three years ago.

What Is Not Working Anymore & Positioning for the Next Cycle

Certain approaches that were once common are proving far less effective. These include underwriting to peak-cycle exit cap rates, assuming short-term rate cuts will restore prior loan proceeds, expecting lenders to stretch leverage to win deals, and delaying decisions in hopes that market conditions will quickly reverse.

The market is functioning - but it is filtering for discipline.

Refinancing today is less about maximizing proceeds and more about certainty of execution, thoughtful structure, and protecting long-term asset value. Whether through a bridge-to-bridge execution that allows a business plan to reach stabilization, or a right-sized refinance loan that strengthens the balance sheet, the objective is the same: create durability through the remainder of the cycle.

Final Thoughts

Capital remains available. Flexibility exists. But structure now reflects a market where risk is being priced more carefully. For borrowers willing to adapt, the refinance gap is not a dead end - it is a design challenge. In this environment, thoughtful structure is what ultimately gets transactions across the finish line.