Nearly $3 trillion in commercial real estate loans originated during the low-interest-rate environment of 2020-2022 are now coming due, with balloon payments that many investors may struggle to refinance at today's higher rates. Jerry Larkowski, a dual-licensed attorney and Managing Broker at ESQ. Realty Group, LLC in Little Rock, Arkansas, explains the pressure building in the market and the limited options facing investors.
According to the Mortgage Bankers Association, roughly $875 billion in commercial and multifamily loans are expected to mature in 2026 alone, with analysts projecting more than $4 trillion in CRE debt coming due between 2025 and 2029. Larkowski notes that many loans written in 2020 and 2021 featured 20 or 25-year amortization schedules but balloon payments due after just five years. When interest rates were near historic lows, the math worked. Now, with rates significantly higher, the picture has changed.
Investors facing balloon payments have three options, none of which are easy. Paying off the loan in full drains capital that most would prefer to deploy elsewhere. Refinancing means locking in a materially higher rate, which puts pressure on margins built around lower debt service. If rents have not kept pace, the numbers stop working. Selling is an option, but as Larkowski points out, “If everybody’s selling, the demand isn’t really any higher, the supply is higher, which means people are either going to have to wait a longer period of time to sell or they’re going to have to lower their price.”
On the ground in Arkansas, Larkowski has observed several investor clients moving toward selling over the past year. Many of the properties entering the market are single-family rentals financed as commercial assets with balloon structures and five-year terms. “Rent houses, in a way, are commercial. They may be residential structures, but to the investors, they’re commercial. They’re doing it for a profit,” he says. This shift could create an opening for first-time homebuyers and owner-occupants who have been priced out, as investors exit positions they can no longer hold profitably.
Larkowski is not predicting a collapse, but rather a forced correction among investors who took on leverage without a plan for when rates changed. “If you’re a wise investor, you kind of prepare for these things. You know that these things are going to happen. And if you’re a good investor, you’ll land on your feet no matter what,” he says. Some investors are selling lower-priority properties now and using the proceeds to shore up debt on assets they want to keep—a sign of portfolio management rather than distress.
The ones most at risk are those who refinance into higher rates, absorb margin compression, and then face the additional pressure of raising rents in a market where tenants have more choices than two years ago. The maturity wall is not a single event but a rolling pressure playing out over several years. For buyers in Central Arkansas and nationally, the practical implication is straightforward: more inventory is coming, investor competition is softening, and negotiating room for patient buyers is real.
For more insights from Jerry Larkowski and ESQ. Realty Group, LLC, visit esqbrokers.com.
