The North Star Universal, LLC: Navigating Refinancing Risk in Today’s NYC Commercial Real Estate Market
What a week in New York City commercial real estate—and what it means for those with capital and conviction. At The North Star Universal, LLC, we have been monitoring a growing undercurrent: refinancing risk and rising interest rates. The changes in the debt markets, combined with evolving cap-rate expectations, demand a fresh strategy.
We believe that refinancings now require more foresight than ever. In this article, we lay out why refinance risk is one of the most salient threats in NYC property investing today—and how investors can respond with practical, risk-adjusted moves that preserve value and cash flow stability.
Rising Borrowing Costs + Cap Rate Pressure: The New Reality
Recent reports from the December 2025 NYU Schack Institute of Real Estate capital markets panel suggest borrowing costs may climb. Even if short-term rates drop, long-term yields—particularly the 10-year Treasury—could rise, pushing cap rates higher. (Commercial Observer)
To put numbers around that: many lenders now price loans based on 5-, 7-, or 10-year Treasury yields. (Select Commercial) Commercial mortgage rates have increased meaningfully, eroding some of the cushion that stabilized cash flow during the earlier low-rate years. (Select Commercial)
Combined with potential rate volatility, borrowers face two intertwined risks: 1) higher debt service burdens, and 2) rising cap rates that may compress property values or force lower valuations.
What This Means for NYC Office and Multifamily Owners
Office: Class A vs. Secondary Properties
Recent data for Manhattan reveals an office availability rate around 15.8%–16.4%, one of the lowest in years. (Avison Young) Leasing activity has returned—especially in prime, Class A buildings. (Facilitate Corporation) But that also highlights a “tale of two markets.” Secondary office buildings often struggle to attract tenants. As refinancing looms, weak or vacant properties will likely feel pressure first: less income means lower DSCR (debt service coverage ratio), making refinancing harder or more expensive.
Multifamily / Mixed-Use: Stability but Watch the Debt
Multifamily and rent-stabilized properties in NYC have remained relatively resilient compared to offices. (GREA - Global Real Estate Advisors) However, owners of older or value-add properties may face CapEx demands, rising interest costs, and thinner margins. If debt comes due and cap rates jump, that could squeeze cash flow or force deferment of maintenance.
Case Examples: Refi Risk in Action
Case 1: Midtown Manhattan Class A Office Tower
A well-leased, trophy office tower in Midtown had a 7-year floating-rate loan issued in 2019 at favorable spreads. As it approaches maturity in early 2026, the owner must refinance. The new rate quote, however, is based on a higher 10-year Treasury. Monthly debt service increases by 18%. With net operating income (NOI) stable but not rising, the property’s debt service coverage ratio shrinks — forcing the owner to consider additional equity or even reorganizing the deal.
Without preemptive planning, refinancing jeopardizes both monthly cash flow and long-term value.
Case 2: Brooklyn Mid-Rise Multifamily Under Value-Add Strategy
An investor bought a 1980s-era multifamily building in Brooklyn in 2021 at a fixed rate, planning to renovate units. The loan matures in 2026. However, rising labor and material costs (inflation) plus likely higher refinancing rates raise CapEx and debt burden significantly.
If cap rates shift upward, the projected resale value drops, limiting exit options. Without a strong exit strategy or buffer, refinancing could lead to negative leverage despite stable rents.
Our Advice: Risk-Adjusted Refinance Strategy for Property Investors
At The North Star Universal, LLC, we recommend a disciplined, proactive framework. Here are four actionable safeguards we advise investors to adopt now:
1. Stress-Test Cash Flow Under Higher Rates
Run projections modeling 150–200 basis point increases in cost of debt. Assess DSCR with conservative NOI and rent assumptions. Only proceed with refinancing if coverage stays robust.
2. Lock in Fixed–Rate Financing When Possible
Floating-rate loans offer flexibility—but only when rates are low. If you can secure a fixed rate today, you avoid future volatility in debt service.
3. Prioritize Asset Quality and Location Over Yield Chasing
Cap rate compression may reverse. Prime multifamily or top-tier office in stable submarkets remains more resilient. Focus on properties with strong tenancy and income stability, rather than high initial yield alone.
4. Maintain a Capital Reserve for CapEx and Interest Shocks
Keep liquidity on hand for unexpected repairs, rent roll issues, or higher debt payments. A healthy reserve helps avoid distress during refinancing.
Why Now Matters — and What’s Next
Some market watchers expect eventual interest rate cuts by the end of 2025. (Commercial Observer) However, long-term yields may remain stubbornly elevated due to inflation and fiscal trends. That means refinancing risk stays real—even if headline rates drift down.
At The North Star Universal, LLC, we view this as a pivotal moment. Investors who act now—stress-testing, locking rates, choosing quality assets, and building reserves—will navigate 2026 more confidently. Those who wait for “back to normal” may discover that the game has changed permanently.
Looking Ahead: Strategic Planning Is the Edge
Refinancing risk doesn’t have to be a crisis. With preparation, diligence, and selective asset management, investors can preserve cash flow, safeguard property valuation, and maintain exit flexibility. That’s the sort of strategic, risk-aware investing that defines our work at The North Star Universal, LLC.
If you are evaluating a refinancing or monitoring loan maturities, consider building no-growth, high-cost stress models now. For portfolios with mixed asset types — office, multifamily, mixed-use — a staggered refinancing schedule, paired with fixed-rate locks, may offer the best path forward.
We remain optimistic: value will survive, but only for those who plan and act wisely.
The North Star Universal, LLC is a risk management and advisory firm. Follow this blog for more insights into the evolving world of NYC realty and beyond @ thenorthstaruniversal.com/WP.
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