Overview

Refinancing a commercial property that hosts multiple tenants is a common move for owners who want to reduce interest costs, lock in longer terms, take cash out, or reposition their portfolio. Unlike single-tenant loans where a single credit profile can drive underwriting, multi-tenant properties are evaluated on aggregated income, lease structure, tenant credit, and market conditions.

In my 15+ years advising owners and arranging commercial loans, I’ve found that success hinges on two linked realities: lenders underwrite the property (not just the borrower), and predictable, documented cash flow wins approvals. This article walks through the underwriting priorities, documentation checklist, decisions that influence pricing, and practical strategies to increase the odds of a smooth refinance.

Sources and further reading I regularly use include the Consumer Financial Protection Bureau for borrower protections and fee transparency, the U.S. Small Business Administration for certain government-backed loan options, and IRS guidance on tax implications — consult these directly as part of your planning (CFPB: consumerfinance.gov; SBA: sba.gov; IRS: irs.gov).

Why multiple tenants change the underwriting playbook

Lenders treat multi-tenant properties as a portfolio of income streams. That has benefits (diversification of risk) and potential drawbacks (tenant churn, lease expirations concentrated at the same time, or high dependence on a few large tenants). Key underwriting focal points include:

  • Net Operating Income (NOI): The stabilized NOI—adjusted for vacancies and reasonable reserves—drives the debt capacity. Lenders will often mark leases to market or stress income for underwriting conservatism.
  • Debt-Service Coverage Ratio (DSCR): DSCR measures property cash flow vs. debt service. For many commercial lenders, a DSCR above 1.2–1.35 is preferable; specialty lenders and portfolio programs may accept lower ratios with compensating factors. For more on DSCR and how lenders view it, see our guide: “How Debt-Service Coverage Ratio (DSCR) Affects Commercial Loan Approval” (https://finhelp.io/glossary/how-debt-service-coverage-ratio-dscr-affects-commercial-loan-approval/).
  • Occupancy and Lease Terms: High, stable occupancy with long-term, investment-grade tenants reduces perceived risk. Short-term leases, retail tenants with sales-based rent, or concentrated expiration schedules increase scrutiny.
  • Tenant credit and financials: Lenders will review tenant credit where lease guarantees exist, and they’ll pay attention to payment history captured in rent rolls.
  • Market comparables and appraised value: The appraised value and comparable sales cap the loan-to-value (LTV) ratio.

Typical loan terms and metrics to expect

Commercial refinancing terms are customized, but typical ranges and considerations include:

  • Loan-to-Value (LTV): LTVs often range from about 60%–75% for conventional commercial loans on multi-tenant assets, depending on property type and borrower strength. Lower LTVs are common for older buildings, assets with lease rollover risk, or in weaker markets. For more context on lender LTV preferences by property type, review: “What Loan-to-Value Ratios Lenders Prefer by Property Type” (https://finhelp.io/glossary/what-loan-to-value-ratios-lenders-prefer-by-property-type/).
  • DSCR requirements: Many lenders prefer DSCR > 1.2; more conservative programs look for 1.25–1.35 or higher, especially on interest-only products.
  • Loan term and amortization: Terms commonly range from 5–25 years with amortization schedules from 20–30 years; CMBS and life companies may offer 10–30 year amortizations with long-term, fixed-rate pricing.
  • Rates and spreads: Pricing varies with market interest rates, borrower credit, property type, and lender appetite. Expect variability and shop multiple lenders.
  • Prepayment and exit terms: Watch for yield maintenance or defeasance on CMBS loans and prepayment penalties on older loans.

Documentation lenders will request (checklist)

  • Signed leases and tenant estoppel certificates (showing current lease status and any defaults).
  • Rent roll (current, typically in spreadsheet format) showing tenant names, lease start/end, base rent, and rents in arrears.
  • Year-to-date and trailing 12-month operating statements and balance sheets; tax returns may also be requested.
  • Recent property-level accounts and bank statements.
  • Certificate of occupancy and proof of insurance.
  • Appraisal (ordered by lender) and environmental site assessment (Phase I ESA for many lenders).
  • Rent rolls and copies of any tenant financial statements (for significant tenants or guarantees).

If your financial statements need tightening, see our guide “Preparing Financial Statements That Impress Lenders” (https://finhelp.io/glossary/preparing-financial-statements-that-impress-lenders/).

Valuation and appraisal nuances for multi-tenant properties

Lenders and appraisers seek a stabilized value. That means:

  • An income approach (capitalization of NOI) is typical; appraisers will normalize income, deduct current or prospective vacancy levels, and apply market cap rates.
  • Market rent vs. in-place rent: If leases are below market, lenders may limit loan proceeds to a value based on in-place rents unless you provide a compelling plan and evidence of lease-up potential.
  • Occupancy seasoning: A property recently leased up may receive a haircut until rental performance stabilizes.

Plan for appraisal timelines and possible re-certifications if your loan closes long after the appraisal date.

Strategies to improve refinance outcomes

  1. Strengthen the rent roll: Get delinquent accounts current and document any tenant concessions or rent abatement periods. Where possible, secure lease extensions with critical tenants.

  2. Stagger lease expirations: Avoid having many leases expire simultaneously; if that’s unavoidable, demonstrate a marketing plan or existing options to renew.

  3. Increase NOI before refinance: Small targeted capital improvements or lease re-marketing can increase rental rates and NOI, often improving DSCR materially.

  4. Build reserves & contingency plans: Lenders like to see reserves for capital repairs and vacancy. Show realistic reserve schedules on pro formas.

  5. Shop the market: Different lenders have different appetites for tenant mix and property types — regional banks, life companies, CMBS, and private lenders each value risks differently. Compare term sheets, not just rates.

  6. Consider partial guarantees or sponsor equity: For newer investors, a personal or corporate guarantee, or adding equity, can reduce perceived risk and improve terms.

Costs and timeline

Refinances include costs similar to purchase loans: appraisal, environmental reports, lender due diligence, title and escrow fees, recording fees, and possible prepayment penalties on the existing loan. Timelines vary: small bank refinances can close in 45–60 days, while CMBS, life company, or agency-style loans may take 60–120+ days.

The Consumer Financial Protection Bureau recommends comparing fees and asking for an itemized estimate when shopping lenders to avoid surprises (CFPB: consumerfinance.gov).

Common mistakes to avoid

  • Overreliance on optimistic pro formas: Lenders will stress test income; ensure your underwriting assumptions are conservative and supported by market data.
  • Ignoring lease expirations: A property can look fine on paper but become risky if 50% of income rolls next year.
  • Failing to shop beyond the incumbent bank: Some banks are reluctant to refinance assets that don’t fit their updated underwriting criteria — competitive bidding matters.
  • Skipping environmental and title review early: Discovering issues late can blow timelines or increase costs.

Real-world examples (anonymized)

Example 1 — Mixed-use office building: A client with a tri-tenant office saw one tenant’s payment history slip. We negotiated a short-term rent reserve funded by the owner and restructured the lease to include a stronger personal guarantee. This raised the modeled DSCR and allowed us to secure a five-year fixed-rate loan with a modestly lower spread.

Example 2 — Retail strip in a secondary market: During a downturn, a retail owner renegotiated percentage rent terms and offered short-term concessions to retain anchor tenants. The lender required a higher reserve and a slightly lower LTV, but the refinance closed and stabilized the property cash flow.

Tax and legal considerations

Refinancing proceeds used to pay off debt are typically not taxable income, as they are debt proceeds — but tax treatment can vary based on how you use cash-out proceeds or restructure ownership. Always consult a tax advisor or CPA about your specific situation (IRS guidance: irs.gov). Legal review of lease assignments, estoppels, and guaranties is also critical; engage your attorney early.

When to call a commercial mortgage advisor

Call a commercial mortgage advisor when:

  • You need to evaluate multiple term sheets and lender structures.
  • Your property has lease rollover concentration or distressed tenants.
  • You want to optimize between rate, term, and flexibility (for example, balancing a lower rate with high prepayment penalties).

A good advisor speeds diligence, helps craft lender-friendly projections, and negotiates fees and terms.

Bottom line

Refinancing a commercial property with multiple tenants is achievable and often advantageous, but it requires a clear focus on verified income, lease quality, and realistic valuation. Prepare comprehensive documentation, stress-test your cash flow, and shop lenders with different risk appetites. Small operational fixes before funding—securing extensions, increasing reserves, or improving rent collection—often produce outsized improvements in loan pricing and approval odds.

Professional disclaimer: This article is educational and reflects general best practices and my industry experience; it is not individualized financial, legal, or tax advice. Consult a licensed commercial lending professional, attorney, and tax advisor about your specific situation.

Authoritative references and further reading

If you’d like, I can produce a tailored refinance readiness checklist or a template rent-roll and NOI worksheet to help you present a stronger loan package.