Compare refinance proceeds, net sale proceeds, and the existing loan balance. Refinance when proceeds, plus cash the sponsor will add, repay the loan on acceptable terms. Sell when net sale proceeds repay the loan and the remaining equity is acceptable. If neither covers the balance, the discussion is a workout.
What goes into the decision?
Refinance proceeds: the maximum loan a current-market lender will write on the property, measured at debt yield, DSCR, and LTV constraints simultaneously. Get this from a senior advisor or directly from a lender that already covers the property type and market.
Broker BOV (broker opinion of value): a written estimate from a credible investment-sales broker on what the property would actually trade at within 90 to 120 days, net of typical concessions. The broker should give an aggressive number and a realistic number. Use the realistic.
Prepayment penalty: the cost of getting out of the existing loan early. Defeasance for CMBS, yield maintenance for bank/life co, step-down for some bank loans. Open-prepayment windows in the last 90 days of the term wipe most penalties.
How do those figures map to the decision?
Refinance is the answer when the refi gap (existing loan minus refi proceeds) is small enough that the sponsor can write the equity check, or fill it with mezzanine debt at acceptable cost. Generally a gap below 15% of the original loan is comfortably refinanceable; 15% to 25% requires real conviction; above 25% the sale or workout conversation becomes serious.
Sale is the answer when the broker BOV (less typical sale costs of 3% to 5% and the prepayment penalty if applicable) clears the existing loan balance and produces an acceptable equity return to the sponsor. The realistic BOV is the only number that matters here, not the aspirational one, not the original purchase basis.
Workout is the answer when neither refi nor sale clears the existing loan balance, when the property is materially underwater. The form depends on the lender. CMBS goes to special servicing. Bank loans go to the workout group. Both can produce extensions, modifications, A-note/B-note bifurcations, discounted payoffs, or deeds-in-lieu.
What is a typical worked example?
Existing loan: $20M balance on a multifamily property, originated 2020 at 3.75%, maturing in 2026, fixed-rate, no prepayment after the lockout window. Trailing 12 NOI: $1.8M.
Broker BOV: $24M aggressive, $22M realistic. Selling proceeds net of 3% sale cost: roughly $21.3M, comfortably clearing the $20M loan and leaving equity to the sponsor.
Result: the realistic broker opinion, net of sale costs, clears the $20 million loan. Whether a refinance also works depends on the lender’s proceeds under the LTV, DSCR, and debt-yield tests. Do not treat a paydown amount as known until those tests are run. The choice then depends on the sponsor's basis, hold period, and tax position. Workout is not the conversation here.
When does the workout conversation start?
When the realistic BOV is below the existing loan balance net of sale costs, AND the refi gap exceeds the sponsor's appetite to write a check or take dilutive subordinate capital. Both conditions, not either.
Frequently asked questions
Should I get the existing lender's renewal quote first?
Get it, but do not let it set the terms of the conversation. The existing lender's renewal quote is rarely the best execution available; it is the easiest path. Run a parallel process and use the comparison to negotiate.
How accurate is a broker BOV?
A credible BOV from an active investment-sales broker is typically within 5% to 10% of the actual trade price for a property that is well-positioned and marketed competently. BOVs from inactive brokers, or BOVs where the broker is fishing for a listing rather than estimating, are less reliable.
What does an A-note / B-note bifurcation look like?
The lender splits the existing loan into an A-note that continues to perform at modified terms (often with a paydown) and a B-note that is junior, often interest-only or accruing, sized to whatever amount the asset cannot support. The B-note typically gets repaid at a future capital event or refinancing if the property recovers.
Sources
- Commercial/Multifamily Mortgage Maturities Outlook · Mortgage Bankers Association · 2026-02
- Financial Stability Report · Board of Governors of the Federal Reserve System · 2025-11
- Treasury Constant Maturity Series (DGS5, DGS10) · Federal Reserve Bank of St. Louis (FRED) · weekly