Cash-Out Refinance for Commercial Property

What Is a Cash-Out Refinance for Commercial Property?

A cash-out refinance for commercial property is a financing strategy that replaces your existing commercial mortgage with a new, larger loan, allowing you to pocket the difference as cash. This approach lets property owners unlock the equity trapped in their buildings without selling the asset. If your commercial property has appreciated in value or you have paid down significant principal, a cash-out refinance for commercial property gives you access to that built-up equity while maintaining ownership and continuing to collect rental income.

For example, if your office building is worth $2 million and you owe $800,000, you might refinance into a new $1.4 million loan (70% LTV) and receive approximately $600,000 in cash at closing after paying off the original balance. Those funds can then be deployed for renovations, acquisitions, or other business purposes.

Unlike selling a property to access equity, a cash-out refinance preserves your investment position, your tenant relationships, and your depreciation benefits. It is one of the most powerful tools in a commercial real estate investor's toolkit for recycling capital and growing a portfolio.

Whether you own multifamily apartments, retail centers, office buildings, or industrial properties, understanding how cash-out refinancing works can help you make smarter capital allocation decisions. This guide covers the rules, rates, and strategies you need to know for 2026.

How Does a Commercial Cash-Out Refinance Work?

A commercial cash-out refinance works by replacing your current mortgage with a new loan that exceeds your existing balance, with the surplus delivered to you as liquid cash at closing. The process typically takes 30 to 75 days depending on the lender and loan program.

First, a lender orders a commercial appraisal to determine your property's current market value. This appraisal, which typically costs $3,000 to $10,000, establishes the ceiling for your new loan amount. The lender then applies their maximum loan-to-value ratio to calculate the highest loan amount they will offer.

The lender simultaneously underwrites the property's income by reviewing your trailing 12-month operating statement, current rent roll, and lease terms. They calculate the debt service coverage ratio (DSCR) to confirm the property generates enough net operating income to support the larger loan payment. Use our DSCR calculator to estimate your ratio before applying.

Once approved, the new loan pays off your existing mortgage at closing, covers all transaction costs, and delivers the remaining cash to you. Your old lender receives a payoff, your new lender records a fresh first lien, and you walk away with funds to deploy.

The entire process mirrors a standard commercial refinance, with the key distinction being that the new loan amount intentionally exceeds the payoff amount to generate cash proceeds. Lenders scrutinize cash-out requests more carefully than rate-and-term refinances because the higher leverage increases their risk.

What Are the LTV Limits for Commercial Cash-Out Refinancing?

LTV limits for commercial cash-out refinancing typically range from 65% to 75%, depending on the property type, lender, and loan program. These limits are 5 to 10 percentage points lower than rate-and-term refinance maximums because cash-out transactions carry higher risk for lenders.

Multifamily properties enjoy the most generous LTV caps. Agency lenders like Fannie Mae and Freddie Mac allow up to 75% LTV on cash-out refinances for stabilized apartment buildings with 5 or more units. Commercial properties such as office, retail, and industrial buildings typically max out at 65% to 70% LTV for cash-out transactions.

SBA 504 loans stand out as an exception, offering up to 90% LTV for owner-occupied commercial properties. If your business occupies at least 51% of the building, the SBA program provides significantly higher leverage than conventional options. Learn more in our guide to SBA loans for commercial real estate.

The actual LTV you receive depends on multiple factors beyond the program maximum. A property with volatile income, short remaining lease terms, or deferred maintenance may receive a lower LTV offer. Lenders also apply DSCR constraints that can limit leverage before the LTV cap is reached. Model different scenarios using our commercial mortgage calculator.

What Rates Can You Expect on a Cash-Out Refinance in 2026?

Cash-out refinance rates for commercial properties in 2026 range from approximately 6.5% to 11%, with the wide spread reflecting differences in lender type, property quality, leverage, and borrower strength. The most competitive rates are available through agency lenders for multifamily properties, while private debt funds charge premium rates for flexibility and speed.

Agency multifamily loans from Fannie Mae and Freddie Mac currently offer cash-out refinance rates between 6.5% and 7.5%. CMBS conduit loans price cash-out refinances in the 7.0% to 8.0% range for stabilized commercial properties. Bank and credit union portfolio loans range from 7.0% to 8.5%, with the best rates reserved for existing depositors and relationship clients.

Private debt funds and non-bank lenders charge 8.5% to 11.0% for cash-out refinances but close significantly faster (14 to 30 days versus 45 to 75 days for institutional lenders). These programs serve borrowers who need speed or cannot meet conventional underwriting requirements.

Rates have moderated from their 2023 and 2024 peaks as the Federal Reserve has adjusted monetary policy. Most industry forecasts project that commercial cash-out refinance rates will remain in the 6.5% to 9.5% range through 2026, with gradual compression as market conditions stabilize.

What Are the DSCR Requirements for a Cash-Out Refinance?

Most lenders require a minimum DSCR of 1.20x to 1.35x for a commercial cash-out refinance, meaning the property must generate at least 20% to 35% more net operating income than the proposed debt service on the new, larger loan. This is the single most important underwriting metric and the one most likely to limit your cash-out amount.

The DSCR calculation is straightforward: divide the property's annual net operating income (NOI) by the annual debt service on the proposed new loan. If your property produces $300,000 in NOI and the new loan payment would be $240,000 per year, your DSCR is 1.25x.

When you extract equity, the loan balance increases, which means higher monthly payments. If the property's income cannot comfortably cover those larger payments, the lender will reduce the loan amount until the DSCR threshold is met, regardless of property value. This means your LTV might be limited not by the program maximum but by the DSCR constraint.

Our DSCR calculator helps you determine the actual maximum loan your property can support before you apply. To improve your DSCR ahead of a cash-out refinance, focus on increasing NOI through rent increases, vacancy reduction, or expense management. Explore DSCR lending programs to find options aligned with your property's income profile.

How Long Must You Own the Property Before a Cash-Out Refinance?

Most lenders require a seasoning period of 6 to 12 months before approving a commercial cash-out refinance. This means you must have owned the property for at least 6 months, and in many cases a full year, before a lender will consider letting you pull equity out.

The seasoning requirement exists to prevent mortgage fraud where a borrower purchases a property, inflates the appraised value, and immediately extracts cash through refinancing. Agency lenders (Fannie Mae and Freddie Mac) typically require 12 months. CMBS lenders generally require 6 to 12 months. Bank portfolio lenders have the most flexibility, with some willing to proceed after just 6 months for strong borrowers.

If you need access to equity before the seasoning period is met, consider a commercial bridge loan as an interim solution. Bridge lenders often have no seasoning requirement and can provide short-term capital while you wait to qualify for permanent cash-out refinancing. Our bridge loan programs are designed specifically for these transitional situations.

There is one notable exception: if you purchased the property with cash (no financing), some lenders will do a "delayed financing" cash-out refinance within the first 6 months to help you recoup your initial investment.

What Can You Use Cash-Out Refinance Proceeds For?

Cash-out refinance proceeds from a commercial property can be used for virtually any legal purpose, though lenders may ask about your intended use during underwriting. The most common uses include property improvements, portfolio expansion, debt consolidation, and business operations funding.

Property Improvements and Capital Expenditures represent the most popular use of cash-out proceeds. Upgrading common areas, modernizing building systems, or renovating units can increase rental income and property value, creating a virtuous cycle that builds more equity for future financing.

Acquiring Additional Properties is a powerful portfolio growth strategy. By extracting equity from a stabilized asset, you can fund the down payment requirements on a new investment property without bringing fresh capital to the table.

Debt Consolidation allows you to pay off higher-interest obligations like credit lines, mezzanine debt, or seller financing. Rolling multiple debts into a single, lower-rate first mortgage simplifies your financial picture and reduces total interest expense.

Business Operations and Working Capital uses include funding payroll, purchasing equipment, or covering expansion costs. For owner-occupants, the property becomes a low-cost capital source for the business.

Regardless of your intended use, keep detailed records of how proceeds are deployed. This documentation supports interest deductibility claims on your tax returns and demonstrates responsible asset management to future lenders.

What Are the Tax Implications of a Commercial Cash-Out Refinance?

The proceeds from a commercial cash-out refinance are not taxable income. Because you are borrowing money rather than earning it, the IRS does not treat refinance proceeds as a taxable event. This is one of the most significant advantages of cash-out refinancing over selling a property to access equity, which would trigger capital gains taxes.

Interest Deductibility is a major benefit. The interest you pay on your commercial mortgage is generally tax-deductible as a business expense. For the cash-out portion specifically, interest is deductible if the proceeds are used for business or investment purposes.

Depreciation Continues when you refinance rather than sell. You maintain your depreciation schedule on the original purchase price, which continues to shelter rental income from taxation. Selling would terminate this benefit and potentially recapture prior depreciation at a 25% rate.

1031 Exchange Alternative is worth considering. While a 1031 exchange allows you to defer capital gains taxes when selling and reinvesting, it requires you to give up the property. A cash-out refinance lets you access equity while keeping the asset, avoiding the restrictive timelines and reinvestment rules of a 1031 exchange.

Always consult with a CPA or tax advisor who specializes in commercial real estate before executing a cash-out refinance to optimize your tax position.

What Documentation Do Lenders Require for a Cash-Out Refinance?

Lenders require comprehensive documentation covering both the property's financial performance and the borrower's personal financial strength. Having these documents organized before you apply can shorten the approval timeline by weeks.

The property documentation package includes a trailing 12-month (T-12) operating statement showing all income and expenses, a current rent roll with tenant names, unit sizes, rental rates, and lease expiration dates, and copies of all leases for major tenants.

Borrower financial documentation includes 2 to 3 years of personal and entity tax returns, a current personal financial statement, 2 to 3 months of bank statements, and a schedule of real estate owned showing all investment properties you hold.

Entity documentation covers your ownership structure, including the operating agreement, articles of organization, certificate of good standing, and EIN verification letter. Some lenders also request a use-of-proceeds statement detailing how you intend to deploy the cash-out funds.

What Are the Closing Costs for a Commercial Cash-Out Refinance?

Closing costs for a commercial cash-out refinance typically range from 2% to 5% of the total loan amount. On a $1.5 million cash-out refinance, expect to pay $30,000 to $75,000 in total transaction costs.

The origination fee is usually the largest single cost, ranging from 0.5% to 2.0% of the loan amount. The commercial appraisal typically costs $3,000 to $10,000 depending on property type and complexity. Legal fees for the lender's attorney and your own counsel typically run $2,000 to $5,000 each. Title insurance costs approximately 0.5% to 1.0% of the loan amount.

These closing costs reduce your net cash proceeds. On a $1.5 million refinance where you are extracting $500,000 in equity, $50,000 in closing costs means your actual usable proceeds are $450,000. Factor these costs into your analysis when determining whether a cash-out refinance makes financial sense.

Ready to explore your cash-out refinance options? Contact our commercial lending team for a no-obligation analysis of your property's equity potential and current rate options.

Should You Choose a Cash-Out Refinance or a Bridge Loan?

Choose a cash-out refinance when your property is stabilized, you can wait 30 to 60 days for funding, and you want the lowest possible long-term interest rate. Choose a bridge loan when you need capital quickly, your property is in transition, or the seasoning period has not been met.

Timing is often the deciding factor. Cash-out refinances take 30 to 75 days to close. Bridge lenders can fund in 10 to 21 days, making them ideal for time-sensitive capital needs.

Property Condition and Income matters because cash-out refinance lenders require stabilized properties with consistent income. Bridge lenders underwrite based on the property's potential value and your plan, making them more accommodating for transitional assets.

Cost Comparison favors cash-out refinancing significantly. A cash-out refinance at 7.0% with a 30-year amortization costs far less over time than a bridge loan at 10.5% with interest-only payments. Learn more about what a commercial bridge loan is and when it makes sense.

For many investors, the optimal strategy is sequential: use a bridge loan for immediate capital access, then execute a cash-out refinance once the property qualifies for permanent financing. Contact us to discuss which approach works best for your specific situation.

Frequently Asked Questions About Commercial Cash-Out Refinancing?

What is the maximum LTV for a commercial cash-out refinance? The maximum LTV ranges from 65% to 75% for conventional lenders and up to 90% for SBA 504 loans on owner-occupied properties. Multifamily properties through agency lenders offer the highest conventional LTV at 75%.

How long does a commercial cash-out refinance take to close? Typically 30 to 75 days from application to closing. Agency and CMBS loans take 45 to 75 days, bank loans take 30 to 60 days, and private debt fund loans can close in as few as 14 to 30 days.

Are cash-out refinance proceeds considered taxable income? No. Cash-out refinance proceeds are not taxable income because they represent borrowed funds, not earnings. However, interest on the cash-out portion is only tax-deductible if funds are used for business or investment purposes.

Can I do a cash-out refinance on a property I just purchased? Most lenders require a seasoning period of 6 to 12 months. If you purchased with cash, some lenders allow delayed financing within the first 6 months to recoup your initial equity investment.

What DSCR do I need for a cash-out refinance? Most lenders require a minimum DSCR of 1.20x to 1.35x. Agency multifamily programs require 1.25x, CMBS lenders require 1.25x to 1.30x, and bank portfolio lenders range from 1.20x to 1.35x.

Does a cash-out refinance require a new appraisal? Yes. Virtually all cash-out refinances require a new commercial appraisal costing $3,000 to $10,000. The appraisal establishes the current market value that determines your maximum loan amount.

Can I use cash-out refinance proceeds to buy another property? Yes. Using cash-out proceeds to fund the down payment on additional investment properties is one of the most popular and strategic uses of cash-out refinancing.

What happens if my property value has decreased since purchase? A cash-out refinance may not be possible if the new loan amount would need to exceed the reduced value at the lender's required LTV. You may still qualify for a rate-and-term refinance, or explore a bridge loan while improving the property's value.

Ready to Unlock Your Commercial Property Equity?

A cash-out refinance can be one of the most powerful financial tools available to commercial property owners. By extracting equity tax-free and redeploying it into higher-returning investments, you can accelerate portfolio growth while maintaining ownership of a performing asset.

The key to a successful cash-out refinance is preparation: know your property's value, understand your DSCR, gather documentation early, and work with an experienced commercial lender who can structure the optimal solution for your goals.

Contact Clear House Lending today to discuss your cash-out refinance options. Our team will provide a complimentary property analysis, current rate quotes, and a clear roadmap to accessing your commercial property equity.

Sources: Federal Reserve Economic Data (FRED), Fannie Mae Multifamily Lending Guidelines, Freddie Mac Optigo Program, SBA 504 Loan Program Guidelines, Commercial Real Estate Finance Council (CREFC), Mortgage Bankers Association Commercial/Multifamily Finance Report 2025-2026.