#capexplanning

Why Refinancing Risk Now Sits at the Center of NYC Risk Management

Refinancing risk has moved from a line item to the headline. Across U.S. commercial real estate, over a trillion dollars of loans will roll by the end of 2026. Many were underwritten in a 3–4% interest rate world. They now refinance into something very different, often with lower property valuations and more conservative lending.(PBMares)

In New York City, this plays out most dramatically in office and mixed-use assets. Office mortgages securitized into CMBS have seen delinquency rates spike to historic highs, underscoring how fragile some capital stacks have become.(Wolf Street)

At the same time, the real economy is not collapsing. Kastle data shows NYC office occupancy recently touched a post-pandemic high near 58%, while top-tier Class A+ towers see far higher visitation.(NYCEDC) That tension—improving fundamentals but higher debt costs—is exactly where we operate. The North Star Universal, LLC views refinancing risk as the bridge between asset performance and lender behavior.

Today’s Rate Environment and DSCR Expectations

In this environment, interest rate quotes are only half the story. Most commercial lenders are pressing harder on the debt service coverage ratio (DSCR). A DSCR of 1.25x is the common threshold for stabilized, low-risk assets in 2025. Lower than that, lenders demand additional equity, guarantees, or stronger sponsor track records.(Terrydale Capital)

We treat DSCR as the heartbeat of refinancing risk. If projected NOI cannot support acceptable DSCR at a realistic refinance rate, there is no sustainable exit strategy. That is true whether the asset is a Midtown office tower or a neighborhood retail strip.

Case Study 1: Midtown Office and the “Extend or Restructure” Question

Consider a hypothetical, but typical, Midtown Manhattan office tower. The original loan was sized at a 3.5% interest rate with a comfortable DSCR of 1.45x. As the 2025 maturity approaches, the new rate quote lands near 6%.

Even with leasing incentives and stable occupancy, the higher rate pushes DSCR down toward 1.15x. On paper, this is still positive cash flow. Yet it falls short of most lender underwriting standards and puts both valuation and refinancing options at risk.

In this scenario, The North Star Universal, LLC would:

- Rebuild the cash flow model under multiple rate and amortization structures. - Test different CapEx deferral and reserve strategies for near-term stability. - Prepare a lender narrative that emphasizes lease quality and operational risk controls.

The outcome is rarely binary. Often, we see a combination of amortization adjustments, additional equity, or partial paydowns instead of a simple “no refinance” answer.

Case Study 2: Brooklyn Mixed-Use and Cash Flow Stability

Now shift to a mixed-use building in Brooklyn with ground-floor retail and apartments above. Residential rents have grown steadily; retail tenants are local service providers with relatively sticky demand.

Here, the refinancing risk story is different. NOI growth from residential units offsets some rate pressure. However, the ground-floor leases still drive lender perception of operational risk. A single retail default could push DSCR into uncomfortable territory.

Our investment property strategy in that case focuses on:

- Upgrading tenant credit quality at renewal, even at slightly lower base rent. - Structuring leases to align rollover with key refinancing dates. - Building a realistic CapEx schedule for façade, mechanicals, and retail fit-outs.

By tying lease management directly to the capital stack, The North Star Universal, LLC can frame a more resilient cash flow profile for lenders, even if base rates stay elevated.

Case Study 3: Global Logistics and the Staggered Maturity Ladder

Refinancing risk is not just a New York story. Consider a European logistics portfolio held in a global fund. Many assets enjoy strong demand and low vacancy, but a cluster of loans mature within a tight two-year window.

In that context, the fund’s biggest vulnerability is concentration of maturities, not weak NOI. Our preferred approach is to build a laddered refinancing schedule:

- Advance-refinance some assets early while credit spreads are favorable. - Extend or restructure others to avoid a single “cliff” year. - Use disposals of non-core assets to deleverage and improve portfolio-level DSCR.

The lesson for NYC owners is clear. Refinancing risk is manageable when you view it as a portfolio design problem, not just a single-asset crisis.

Our Playbook: How We Underwrite Refinancing Risk Today

When we work with owners and investors, we treat refinancing risk as its own discipline. It sits alongside leasing, CapEx, and asset management.

Stress-Testing NOI and DSCR Under Realistic Assumptions

We start with a simple question: What DSCR can this asset truly support at market rates? Then we run scenarios:

- Base case: current NOI, refinance at today’s indicative rate and terms. - Downside: modest NOI decline, slower lease-up, modest CapEx overshoot. - Upside: targeted leasing wins, rent growth in line with recent comps.

Within each scenario, we map DSCR outcomes and test minimum covenants during the loan term, not just at closing. That highlights when cash flow stability is at risk and where equity infusions or amortization changes may be required.

Integrating CapEx, Valuation, and Exit Strategy

Next, we integrate CapEx with property valuation and exit strategy. Many assets face higher CapEx in the next cycle—façade repairs, sustainability upgrades, or tenant improvements required to stay competitive.

We fold these investments into both NOI forecasts and valuation assumptions. That lets us answer tougher questions, such as:

- Does the planned CapEx actually protect or enhance value under realistic cap rates? - Is a partial sale or recapitalization a better path than a full refinance? - Should we treat the next refinance as a bridge to a sale, or a long-term hold?

By aligning CapEx with refinancing events, The North Star Universal, LLC helps owners prioritize projects that actually support future debt service, not just aesthetics.

Looking Beyond 2025: Opportunity in a Higher-Rate World

We do not see 2025 as a purely defensive year. Yes, refinancing risk is real. But so are opportunities. As lenders ease some of the strict tightening seen in prior years, well-prepared sponsors can secure financing on quality assets that weaker borrowers cannot support.(Deloitte)

For disciplined investors, this environment rewards clear thinking about DSCR, cash flow stability, and exit strategy. It also rewards those who treat refinancing as a continuous process, not a one-time event.

From our vantage point, the refinancing wall is not a dead end. It is a sorting mechanism. Owners who proactively manage risk, communicate transparently with lenders, and structure capital with intent will pass through. Others will be forced to sell, recapitalize, or hand back keys.

The North Star Universal, LLC exists to help our clients land on the right side of that divide.

Practical Next Steps and Engagement

If you own or finance New York commercial property, this is the right moment to:

- Rebuild your refinance models at today’s rates and DSCR standards. - Align lease rollover and CapEx timing with debt maturities. - Revisit your portfolio-level maturity ladder and exit strategy.

We invite you to use this article as a starting point. Share it with your capital partners. Sit down with your team and ask, “What does our 2025–2027 refinancing map really look like?”

If you would like a structured review of your refinancing risk profile, we welcome the conversation. Follow The North Star Universal, LLC for ongoing insights, and reach out if you want a deeper, asset-specific review.

If you found this perspective useful, we encourage you to follow, share, or discuss these insights with your team and peers in the industry.

Understanding vacancy fluctuations and why they matter

Vacancy behavior is not merely an occupancy metric—it signals cash‑flow stability, tenant default risk, and market sentiment. According to the latest NYC Economic Development Corporation snapshot, city‑wide office vacancy hovered around 14.5 % in Q1. (NYCEDC) For a landlord, that means one in seven square feet sits un‑utilised—and from a lender or equity partner’s lens, that influences DSCR (debt service coverage ratio) thresholds, NOI projections, and exit valuations.

Take the scenario of a 200,000‑square‑foot mid‑town office building. If vacancy jumps from 10 % to 15 %, the NOI dips materially. That shift might force a re‑underwritten cap rate or accelerate a lease rollover risk. In our work at The North Star Universal, LLC, we see owners under‑estimating how quickly vacancy swings trigger covenant defaults, insurance rate hikes, or refinancing stress.

Cap‑rate compression: A double‑edged sword

Simultaneously, markets are witnessing cap‑rate compression, especially for trophy assets and stabilized properties. Nationally, cap rates have returned to post‑GFC levels, with office hitting about 7.7 % in Q1 and industrial around 6.4 %. (CRE Daily) In NYC, retail and mixed‑use assets in prime corridors are being assessed with guidelines between 32 %–33 % cap rates per 2025–26 tax commission schedules—though note those figures reflect unique retail segments. (New York City Government)

At first glance, cap‑rate compression boosts valuations, improving equity returns. But for risk management, the key caution is: if cap rates are overly compressed and a market correction occurs, the reversal magnifies investor downside. A property acquired at a 5 % cap rate growth‑expected today might face a re‑pricing at 6.5 % if NOI stalls—or worse, falls. That magnitude of correction translates into a 23 % valuation drop. Our advisory model with clients at The North Star Universal, LLC therefore emphasises stress‑testing cap‑rate sensitivity alongside vacancy and NOI scenarios.

Case study: Midtown NYC office and industrial alternative

Midtown office (Class A): We worked with a landlord facing a lease rollover of 150,000 sf in 2026. With current vacancy at 12 % and asking rents just under $85/sf, the risk model included a 20 % renewal failure and a six‑month downtime. That downtime created a projected NOI drop of 8 %, which in turn shifted the DSCR from 1.35× to 1.20×—just above a typical lender covenant threshold. We recommended early tenant incentives and cap‑ex upgrades to stabilise asking rent before rollover.

Brooklyn industrial asset: Meanwhile, in the industrial sector we advised an owner of a 300,000 sf logistics facility. Vacancy in NYC industrial markets recently touched 10.2 % in Q1 2025—an eleven‑quarter high. (CRE Daily) With supply surging and leasing slowing, we modelled a 6‑month lease‑up delay and a 3 % rental concession. This allowed our client to pre‑negotiate options and adjust their exit strategy to avoid blowing through their value‑add window.

Strategic alignment: investment property strategy meets operational risk

In each scenario we bring a holistic lens: blending investment property strategy with operational risk oversight. At The North Star Universal, LLC we emphasise key levers:

- DSCR and covenant monitoring: Ensure vacancy fluctuations are baked into lender scenarios. - Cap‑ex planning: Capital expenditures (CapEx) become critical when leasing markets tighten. Incentives, tenant fit‑out allowances and amenity upgrades can reduce downtime. - Exit strategy clarity: With cap‑rates compressed, your exit must lean on stronger NOI growth and validated rent escalators. Market timing matters more than ever. - Property valuation sensitivity: Model multiple cap‑rate and leasing scenarios, not just base‑case. A one notch shift in cap rate (say 50 bps) at a $50 m asset can change value by ~$1 m. - Commercial property risk mitigation protocols: Include periodic tenant roll‑analysis, alternative use assessments (such as conversion readiness), and insurance cover that contemplates extended vacancy.

Why this week’s focus is timely

Given this week’s data release and conversations with underwriters, investor concern is shifting from “if” leasing will recover to “how quickly.” With vacancy rates in Manhattan showing signs of decline—such as an April reading of 16.2 % in Manhattan per one report—(Urbanize New York) the timing to reassess valuations, rollover risk and exit discipline is now. For global capital considering NYC assets, the messaging of cap‑rate compression is already factored in—but the operational risks (tenant churn, lease downtime, amortization schedule mis‑alignment) are less visible and demand rigorous diligence.

Navigate the waves with clarity

As custodians of investor capital and asset operations, we at The North Star Universal, LLC see the current mix of rising vacancy risks and tighter cap‑rate windows as both a warning and an opportunity. By integrating operational discipline with investment strategy, we help ensure that your assets aren’t just riding the tide—they are positioned to lead. For owners, investors or lenders concerned about NYC portfolio stability, now is the time to run scenario planning, stress‑test assumptions and lock in risk mitigation protocols.

We welcome your questions and invite you to discuss how these dynamics might impact your portfolio. Share this post, follow our blog for fresh perspectives, and partner with us as your advisory lens for commercial property risk in NYC and beyond.