Short answer
The step-up reflects the lender's increased duration risk past the initial maturity and incentivizes the sponsor to refinance into permanent debt promptly once the asset stabilizes.
How does it interact with prepayment?
Step-up pricing is an incentive to refinance on schedule. Combined with a make-whole or minimum-multiple test, it can make late refinance unattractive. Sponsors should model the refinance economics under both no-extension and full-extension scenarios before locking the bridge.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1