Commercial real estate · Maturity planning
Commercial mortgage renewal in Canada
At maturity a commercial mortgage is re-underwritten against current net operating income and current rates, not against the terms it was written on. Understanding what that arithmetic produces — before the lender runs it — is what protects the loan amount and the structure.
How is a commercial mortgage re-sized at renewal?
The lender recalculates net operating income — effective gross income less operating expenses, with vacancy, management and a structural reserve deducted — then determines the annual payment that NOI supports at the lender's required debt service coverage. That payment, at current rates and amortization, sets the supportable balance. Loan-to-value then caps it.
The arithmetic
Where owner NOI and lender NOI diverge
Illustrative figures. The pattern, not the amounts, is the point.
| Line | Owner's statement | Lender's underwriting |
|---|---|---|
| Gross potential rent | $1,150,000 | $1,150,000 |
| Vacancy and credit loss | Actual 1% | Underwritten at market, typically higher |
| Management fee | Not charged — self-managed | Imputed at a market rate |
| Structural reserve | Not deducted | Deducted per square foot or per unit |
| Operating expenses | As incurred | Normalized, with non-recurring items removed |
| Net operating income | Higher | Lower — often materially |
| Supportable debt service at required DSCR | — | Derived from the lower NOI |
Illustrative only. Vacancy assumptions, management rates, reserve amounts and coverage requirements are set by each lender for each property type and market.
Sequence
What to do, and when
12 months out
Re-underwrite the property yourself. Recalculate NOI with market vacancy, a management fee and a reserve, then test coverage at today's rates rather than your existing rate.
9 months out
Refresh the file: current rent roll, operating statements, material leases, tax and insurance. Identify lease expiries landing near maturity — they weaken the file.
6 months out
Resolve property-level issues. Deferred maintenance, environmental questions and holdover tenants take longer to address than borrowers expect.
3 months out
Approach the incumbent and at least one alternative with a complete package. Where the balance is being re-sized downward, this is when options still exist.
Questions people ask
Commercial mortgage renewal, answered directly
When should I start preparing for a commercial mortgage renewal in Canada?+
Nine to twelve months before maturity. Rent rolls and operating statements need to be current, an appraisal or environmental report can take weeks to commission, and a competing lender needs roughly ninety days to underwrite a property. Preparation inside sixty days generally removes any negotiating position.
What documents are needed for a commercial mortgage renewal?+
Typically a current rent roll, two to three years of property operating statements, leases for material tenants, property tax and insurance confirmation, corporate financial statements for the borrowing entity, a personal net worth statement for guarantors, and an environmental and appraisal position acceptable to the lender.
How is DSCR calculated on a commercial property?+
Net operating income divided by annual mortgage payments. NOI is effective gross income less operating expenses, with vacancy, management and a structural reserve deducted whether or not you actually pay them. A lender's NOI is often lower than an owner's because of those normalizations.
Why might a renewal come back at a lower loan amount?+
Because the loan is re-sized against current NOI and a current capitalization rate. If rates have risen, the payment supporting the same NOI is smaller, and if vacancy or expenses have grown, NOI itself is lower. Both effects can reduce the supportable balance even where the property performs well.
Can I refinance a commercial mortgage before maturity?+
Usually, subject to the prepayment terms in your commitment — which may include a penalty, an interest-rate differential, or a closed period during which prepayment is not permitted. Whether early refinancing is worthwhile is an arithmetic question: compare the penalty against the value of the new terms.
What if the incumbent lender declines to renew?+
The balance becomes due at maturity, so the practical response is a refinancing process started early enough to complete. Where timing is tight, bridge financing can cover the gap while a conventional facility is arranged, at a higher cost that reflects the shorter timeline.
Related: commercial loan renewal timeline, DSCR calculator, and commercial mortgage financing in Canada.
Run the lender's arithmetic before the lender does.
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