Six Strategies to Consider When Your Landlord’s Loan Matures

With approximately $930 billion in commercial real estate loans maturing in 2025, tenants face uncertainties when their landlord’s loan comes due. This situation, compounded by the risk of loans being “upside down,” can affect lease terms, property upkeep, or tenancy stability. This article outlines concise strategies for tenants to navigate this challenge while maintaining business continuity.

Why loans may be upside down

A landlord’s loan becomes upside down when the property’s value falls below the outstanding debt, a growing concern in 2025. Many loans originated during low-interest periods (2015–2019) featured short-term, interest-only structures, requiring only interest payments initially. These loans, often at 3%-4% rates, deferred principal repayment, assuming that property values would rise. 

However, post-pandemic office vacancies, 36.7% in San Francisco and 27.6% in Dallas-Fort Worth in 2024, have depressed valuations. With refinancing rates now averaging 6.2%, landlords face higher payments on loans that exceed the property's worth, limiting their financial flexibility and impacting tenants.

Strategic options for tenants

Tenants can adopt targeted strategies to protect their interests when a landlord’s loan matures, leveraging market dynamics for favorable outcomes.

1. Negotiate Lease Adjustments

A maturing loan incentivizes landlords to retain tenants to bolster refinancing prospects. Tenants can seek rent reductions or extended terms. In Dallas-Fort Worth, where office vacancy fell to 27.6% in 2024 from 30.1% in 2023, securing a stable tenant is critical for landlords, enhancing negotiation leverage.

2. Seek Debt Transparency

Engage landlords 12-18 months before maturity to clarify debt terms and refinancing plans. High vacancy markets like San Francisco signal default risks, with only 10% of 2024 CMBS loans paid off on original terms. Understanding these risks helps tenants anticipate disruptions.

3. Propose Tenant-Funded Upgrades

If landlords lack funds due to loan pressures, tenants can finance improvements, like modernized office layouts, in exchange for rent credits. Newer buildings saw 13.5 million square feet of positive net absorption in 2024, showing demand for upgraded spaces that aid landlord refinancing.

4. Explore Sublease or Assignment

Subleasing excess space or assigning the lease can mitigate risks if the property’s future is uncertain. In high-demand areas like Uptown Dallas, with rents at $60-$100 per square foot, subleasing is viable, though broader market challenges (30% vacancy) require careful execution.

5. Prepare for Ownership Shifts

Upside-down loans increase default risks, with $570 billion in 2025 maturities potentially leading to sales or foreclosures. Tenants should secure non-disturbance agreements to protect their lease during ownership changes, reviewing lease terms for clarity.

6. Leverage Relocation Opportunities

Use the landlord’s financial strain to negotiate early lease termination and relocate to Class A properties. In Dallas-Fort Worth, 7.6 million square feet is either under construction or recently delivered. This aligns with the “flight to quality” trend favoring amenity-rich spaces.

Key considerations

Tenants must act strategically and consider the following:

• Timing: Initiate talks early to maximize leverage.
• Lease Terms: Review clauses on subleasing or termination.
• Market Insight: Be aware of Uptown DFW’s tight supply, which contrasts with oversupplied submarkets like Plano.
• Advisory Support: Engage real estate experts for tailored solutions.

Conclusion

Tenants should navigate landlord financial pressures proactively. As real estate experts, Site Selection Group is here to help. By negotiating adjustments, seeking transparency, or exploring relocation, tenants can turn challenges into opportunities. Using data plus a real estate expert to help in negotiations leads to informed decisions, ensuring stability in a shifting market.