#cashflowstability

At The North Star Universal, LLC, we have spent the past week closely tracking one issue that continues to surface in nearly every NYC commercial real estate conversation: refinancing risk under sustained higher interest rates. What makes this moment different is not simply where rates sit, but how quickly lender behavior, underwriting standards, and asset valuations are adjusting in real time.

For owners who financed aggressively between 2019 and 2022, the next 12–24 months will define portfolio outcomes. Refinancing is no longer a mechanical exercise. It is now a strategic stress test.

Why Refinancing Risk Is the Defining Issue Right Now

Recent market data from early January 2026 shows NYC commercial mortgage rates holding materially above their five-year averages, while spreads remain wide for secondary and transitional assets. At the same time, citywide office vacancy has edged up again this week, and select retail corridors are seeing slower absorption despite stable foot traffic.

This combination matters. Higher debt costs and uneven demand place immediate pressure on debt service coverage ratio (DSCR), especially for assets with near-term loan maturities. Even properties with stable tenants can face refinancing gaps if underwriting assumptions no longer align with lender models.

At The North Star Universal, LLC, we see refinancing risk as an operational issue first, not a capital markets problem alone.

How Lenders Are Rewriting the Rules

1. DSCR Is Now the Primary Gatekeeper

Many lenders are underwriting to higher DSCR thresholds than they were even six months ago. This week’s market conversations point to DSCR targets tightening by another 10–15 basis points for mixed-use and office-adjacent assets.

For owners, this means NOI volatility that once felt manageable can now derail a refinance entirely.

2. CapEx Scrutiny Is Intensifying

Lenders are no longer deferring CapEx planning. They are asking detailed questions about near-term capital needs, sustainability upgrades, and deferred maintenance. Buildings without a clear CapEx roadmap face lower proceeds or higher reserves.

3. Exit Strategy Matters Earlier

Exit assumptions are being stress-tested at loan origination. Cap rate compression is no longer assumed. Instead, lenders want to see downside-protected exit strategies that account for longer hold periods.

Mini-Case Analyses: Risk Management Across Markets

Case 1: Midtown Manhattan Office Conversion

A mid-size office asset approaching refinance this quarter faced a projected DSCR shortfall due to slower lease-up. The sponsor mitigated risk by pre-negotiating flexible lease terms with anchor tenants and reallocating CapEx toward conversion-ready improvements. This stabilized cash flow enough to preserve refinancing options.

Case 2: Sun Belt Industrial Portfolio

In a global context, an industrial portfolio in the Southeast benefited from strong NOI growth but still faced refinancing pressure due to higher rates. The owner addressed this by extending loan maturity early and reallocating capital away from speculative expansion toward debt reduction. Cash flow stability outweighed short-term growth.

Case 3: European Mixed-Use Asset

A European mixed-use property navigating ESG compliance costs used sustainability upgrades to unlock preferential loan pricing. Environmental improvements reduced long-term operational risk and improved lender confidence, supporting valuation despite rate headwinds.

Each case underscores the same lesson: refinancing outcomes are shaped months before lenders are engaged.

Practical Strategies We Are Seeing Work

At The North Star Universal, LLC, our current advisory focus centers on three actionable strategies:

- NOI Hardening: Tighten expense controls and eliminate revenue leakage. Small improvements now materially affect DSCR later. - Capital Reallocation: Shift discretionary CapEx toward items that directly support valuation and lender confidence. - Early Lender Dialogue: Engage lenders well before maturity to test assumptions and adjust strategy proactively.

These steps transform refinancing from a reactive event into a managed process.

Internal Insight Opportunities

This topic connects naturally with prior firm discussions on tenant default risk, cash flow stability, and property valuation under stress scenarios. Internal links can guide readers toward those complementary perspectives without repeating analysis.

Looking Ahead

Refinancing risk will remain front and center throughout 2026, but it does not have to be destabilizing. Owners who approach this cycle with disciplined analysis, realistic exit strategies, and operational clarity can protect valuation and position assets for the next phase of growth.

We believe this moment rewards preparation over prediction.

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.