It has been a consequential week in New York City commercial real estate—and a revealing one for investors with capital, exposure, and conviction. At The North Star Universal, LLC, we have been closely tracking a growing undercurrent in the market: refinancing risk amid sustained interest-rate pressure.
Shifts in the debt markets, combined with changing cap-rate expectations, are forcing owners to rethink assumptions that held true during the low-rate era. Refinancing today is no longer a mechanical rollover. It is a strategic decision that requires foresight, liquidity planning, and disciplined risk management.
In this article, we explain why refinancing risk has emerged as one of the most pressing threats facing NYC property owners—and how investors can respond with practical, risk-adjusted strategies designed to preserve value and stabilize cash flow.
Rising Borrowing Costs and Cap-Rate Pressure: A Structural Shift
Insights from the December 2025 NYU Schack Institute of Real Estate capital markets panel point to a challenging outlook. Even if short-term rates soften, long-term yields—particularly the 10-year Treasury—may continue to rise, exerting upward pressure on cap rates. ([Commercial Observer][1])
This matters because many lenders price commercial loans off 5-, 7-, or 10-year Treasury benchmarks. ([Select Commercial][2]) As those benchmarks rise, commercial mortgage rates follow, reducing the margin that once protected cash flow during the ultra-low-rate cycle. ([Select Commercial][2])
The result is a dual risk for borrowers:
- higher ongoing debt service, and
- higher cap rates that can compress valuations precisely when loans mature.
Together, these forces are redefining refinancing outcomes across asset classes.
Implications for NYC Office and Multifamily Owners
Office Assets: A Tale of Two Markets
Manhattan’s office availability rate currently hovers between 15.8% and 16.4%, among the lowest levels seen in recent years. ([Avison Young][3]) Leasing momentum has returned, particularly for well-located, Class A properties. ([Facilitate Corporation][4])
But this recovery underscores a widening divide. Secondary and commodity office buildings continue to struggle with tenant demand. As loans mature, weaker income streams translate into lower debt-service coverage ratios, making refinancing more expensive—or, in some cases, unattainable without new equity.
In this environment, refinancing risk will surface first where asset quality and tenancy are weakest.
Multifamily and Mixed-Use: Relative Stability, Rising Constraints
NYC multifamily and rent-stabilized assets have demonstrated greater resilience than office properties. ([GREA][5]) Still, owners of older or transitional buildings face mounting pressure from CapEx requirements, higher interest costs, and narrowing margins.
When debt maturities coincide with upward cap-rate movement, even stable rent rolls may not prevent cash-flow compression or deferred maintenance. Refinancing remains feasible—but no longer frictionless.
Refinancing Risk in Practice: Two Illustrative Scenarios
Case 1: Midtown Class A Office Tower
A trophy Midtown office tower financed in 2019 with a seven-year floating-rate loan approaches maturity in early 2026. The property remains well leased, but refinancing terms are now tied to a materially higher 10-year Treasury yield.
The result: an 18% increase in monthly debt service. Net operating income remains steady, yet DSCR tightens enough to force difficult choices—injecting fresh equity, restructuring the capital stack, or accepting reduced cash flow.
Absent advance planning, refinancing alone threatens both liquidity and long-term value.
Case 2: Brooklyn Mid-Rise Multifamily Value-Add
A Brooklyn multifamily asset acquired in 2021 under a value-add strategy faces loan maturity in 2026. Inflation-driven labor and material costs have increased renovation expenses, while refinancing rates are meaningfully higher than at acquisition.
If cap rates rise, projected exit values decline, limiting flexibility. Without sufficient reserves or a conservative refinancing structure, the deal risks negative leverage despite stable occupancy.
Our Framework: A Risk-Adjusted Approach to Refinancing
At The North Star Universal, LLC, we advise investors to approach refinancing with discipline and preparation. Four safeguards are especially critical in today’s market:
1. Stress-Test Cash Flow Aggressively
Model debt costs with 150–200 basis-point increases, conservative NOI assumptions, and limited rent growth. Proceed only if DSCR remains durable.
2. Favor Fixed-Rate Certainty Where Available
Floating-rate debt offers flexibility—but only in benign rate environments. Fixed-rate financing can provide stability and insulation against further volatility.
3. Emphasize Asset Quality Over Yield
As cap-rate compression unwinds, prime assets in strong submarkets retain refinancing optionality. Yield chasing without income durability is increasingly risky.
4. Preserve Liquidity
Capital reserves are no longer optional. Liquidity cushions protect against CapEx surprises, income disruptions, and interest-rate shocks during refinancing.
Why Timing Matters
While some analysts anticipate rate cuts by late 2025, ([Commercial Observer][1]) long-term yields may remain elevated due to inflationary and fiscal pressures. That reality keeps refinancing risk firmly in play—even if short-term policy shifts.
For investors, this moment demands realism. Waiting for a return to prior norms may prove costly. Acting now—through stress testing, rate locks, asset prioritization, and reserve planning—positions owners to navigate 2026 with confidence.
Strategic Planning as Competitive Advantage
Refinancing risk does not have to become distress. With early preparation and disciplined capital management, investors can protect cash flow, defend valuations, and preserve exit flexibility.
That philosophy defines our work at The North Star Universal, LLC. For portfolios spanning office, multifamily, and mixed-use assets, staggered maturities paired with fixed-rate strategies often provide the most resilient path forward.
We remain constructive on New York City real estate—but clear-eyed. Value will persist for those who plan deliberately and act decisively.
The North Star Universal, LLC is a risk management and advisory firm. Follow this blog for insights on NYC real estate, capital markets, and strategic investment planning at thenorthstaruniversal.com/WP.