Financing Options When Your Property Is in Distress
The options an owner behind on a commercial mortgage has, from a workout with the lender to bridge or mezzanine money, a sale or a formal restructuring.
Updated & fact-checked Figures are linked to their sources at the end of the article.
A property is in distress when its owner can no longer carry the debt on it: payments are being missed, a loan is coming due that cannot be refinanced, or the lender has started enforcing. This article is for owners of hotels, apartment buildings, mixed-use and retail property who are in that position or can see it coming.
The options narrow quickly once a lender starts enforcing, so the order in which you look at them matters. Below are the main routes, roughly from the least to the most drastic, and what each one needs to work.
Why so many owners are here now
Many commercial loans written when interest rates were low are now maturing at much higher rates, and buildings that covered their old payments do not support a new loan of the same size. In the U.S. securitized loan market, which is tracked monthly, delinquencies rose to their highest level since late 2020 in September 2026. Trepp, the analytics firm that publishes the figures, said a handful of large loans that missed their maturity payoff dates drove much of the increase.[1]
U.S. CMBS delinquency rate by property type, September 2026
Show the data as a table
| Category | Delinquency rate |
|---|---|
| Office | 12.16% |
| Multifamily | 8.04% |
| Retail | 6.58% |
| Lodging | 6.18% |
| Industrial | 1.14% |
There is no comparable monthly series for Canadian commercial mortgages. The point for any owner is the same in both countries: a maturity date you cannot refinance is a default, even if every payment has been made on time.
Start with the lender
Most lenders would rather be repaid than own a building. A workout is any agreement that changes the loan terms to avoid enforcement. In the U.S., the federal bank regulators’ 2023 policy statement on commercial real estate loans encourages banks to “work prudently and constructively with creditworthy borrowers during times of financial stress”, and covers short-term accommodations such as deferring payments or accepting partial payments.[2] That is guidance to banks, not a right for borrowers, but it means a well-prepared request is normal business for a lender.
Common workout terms include:
- Payment deferral or interest-only period, to get a building through a renovation, lease-up or bad season.
- Maturity extension, usually in exchange for a fee, a higher rate or a partial paydown.
- Re-amortization, spreading the balance over a longer period to lower the payment.
- Cash management, where rents go to an account the lender controls until the loan is back in line.
What to bring to a workout conversation
Current numbers, not projections
A rent roll or occupancy and ADR report, trailing 12-month operating statement, and the latest property tax and insurance bills.
An honest explanation
What went wrong, whether it is temporary (a renovation, a lost anchor tenant) or structural (the building is worth less than the loan).
A specific proposal
The terms you are asking for, how long you need and how the loan gets repaid at the end of that period.
What you are putting in
New equity, a partial paydown or a guarantee shows the lender you are sharing the risk.
Your alternatives
A refinance quote, a buyer’s letter of intent or a partner’s commitment makes the lender’s choice clearer.
Refinance, bridge or mezzanine money
If the property still has equity, new money can solve the problem. The choice is mostly a trade between cost, speed and how much control you give up.
| Source | How it works | What it costs you | When it fits |
|---|---|---|---|
| Refinance with a bank or credit union | A new first mortgage repays the old one | Lowest rate, but strict debt-service and loan-to-value tests | The building’s income already supports the new loan |
| Private or bridge first mortgage | A short-term loan from a private lender or family office, priced for speed and flexibility | Higher rate and fees, and a clear exit is required | Lease-up, renovation or a sale in progress; a bank cannot move fast enough |
| Second mortgage or mezzanine loan | Subordinate money behind the first lender, secured by a second charge or by a pledge of the shares of the owning company | Higher still; needs the first lender’s consent in most cases | There is equity, but the first lender will not increase its loan |
| Preferred equity or joint-venture partner | An investor puts in cash for a priority return or a share of ownership | You give up part of the upside and some control | The building has a future, but the owner cannot fund it alone |
| Partial sale | Sell a pad site, a parcel, a strata unit or a second property | You lose that asset | There is something separable to sell |
Two practical points. First, most first mortgages restrict further borrowing against the property, so a second mortgage or mezzanine loan usually needs the senior lender’s written consent, and an intercreditor agreement sets out who can do what on default. Second, in Canada there is a legal ceiling on the cost of credit. The Criminal Code’s criminal rate is an annual percentage rate over 35%, calculated on the credit advanced and including fees.[4] Regulations in force since January 1, 2025 exempt loans to corporations for business purposes above $500,000, and allow up to 48% for business loans to corporations between $10,000 and $500,000.[5] Loans to individuals, even for an investment property, do not get those exemptions.
Sell before the lender does
When the debt is larger than any lender will refinance and no partner will fund the gap, a sale on your own terms usually beats a forced sale. You choose the broker and the timing, buyers can do proper due diligence, and any equity left after the mortgage, fees and costs is yours. If the property is worth less than the loan, the lender may accept a short payoff, or take the property back by agreement; in either case get any release of the remaining debt in writing. Our guide to distressed properties covers the stages of foreclosure and how it works in Nova Scotia and California.
Formal restructuring
When an operating business owns the property, such as a hotel company with several lenders, staff and suppliers, a formal insolvency proceeding can buy time to restructure. These are court-supervised and expensive, and they are a lawyer’s and licensed insolvency trustee’s territory. In outline:
Formal options in Canada and the U.S.
Canada
- A business can file a notice of intention to make a proposal under the Bankruptcy and Insolvency Act. It must file a cash-flow statement within 10 days, and the proposal within 30 days, extendable by the court in steps of up to 45 days, to a maximum of five more months.
- Filing the notice stays most creditor actions. A secured creditor that sent a section 244 enforcement notice more than 10 days before the filing is not stayed, so timing matters.
- A secured creditor that intends to enforce against all or substantially all of a business’s property must generally give 10 days’ notice first.
- Larger companies, with total claims over $5 million, can use the Companies’ Creditors Arrangement Act instead.
United States
- A business can file under Chapter 11 of the Bankruptcy Code, which brings in an automatic stay of collection and foreclosure.
- For “single asset real estate”, the stay is limited: within 90 days of the order for relief (or 30 days after the court decides the rule applies, if later) the owner must file a plan with a reasonable possibility of confirmation or start monthly payments to the mortgage lender.
- Otherwise the lender can ask the court to lift the stay and continue its foreclosure.
The Canadian points come from sections 50.4, 69 and 244 of the Bankruptcy and Insolvency Act and section 3 of the Companies’ Creditors Arrangement Act;[6][7][8][9] the U.S. point from section 362(d)(3) of the Bankruptcy Code.[10]
Sources
- CMBS delinquencies reach highest level since 2020 (reporting Trepp’s September 2026 CMBS delinquency figures) — Scotsman Guide, October 6, 2026. Checked 2026-10-12.
- Agencies finalize policy statement on commercial real estate loan accommodations and workouts — Board of Governors of the Federal Reserve System, FDIC, NCUA and OCC, June 29, 2023. Checked 2026-10-12.
- Interest Act (R.S.C., 1985, c. I-15), section 8 — Justice Laws Website, Government of Canada. Checked 2026-10-12.
- Criminal Code (R.S.C., 1985, c. C-46), section 347: Criminal interest rate — Justice Laws Website, Government of Canada. Checked 2026-10-12.
- Criminal Interest Rate Regulations (SOR/2024-114) — Justice Laws Website, Government of Canada. Checked 2026-10-12.
- Bankruptcy and Insolvency Act, section 50.4: Notice of intention — Justice Laws Website, Government of Canada. Checked 2026-10-12.
- Bankruptcy and Insolvency Act, section 69: Stay of proceedings, notice of intention — Justice Laws Website, Government of Canada. Checked 2026-10-12.
- Bankruptcy and Insolvency Act, section 244: Advance notice — Justice Laws Website, Government of Canada. Checked 2026-10-12.
- Companies’ Creditors Arrangement Act, section 3: Application — Justice Laws Website, Government of Canada. Checked 2026-10-12.
- 11 U.S. Code § 362: Automatic stay — Legal Information Institute, Cornell Law School. Checked 2026-10-12.
