The maturity wall is not coming. It is already here.

Between 2020 and 2022, an enormous amount of Class B and C multifamily across Dallas-Fort Worth was bought or refinanced with short-term debt. Bridge loans, three year terms, floating or low fixed rates, sized at peak values. That debt is now coming due, and it is coming due into a market that prices risk very differently than the one that originated it.

The problem is arithmetic, not sentiment. A new senior loan is sized two ways, and the lender takes the smaller answer. The value test: a maximum loan-to-value ratio against what the property appraises for today. The income test: the loan the property’s net operating income can service at today’s rates with a cushion. Both answers shrank. Values compressed as cap rates moved up, and the income test tightened as the rate on the new loan roughly doubled from the 2021 lows.

Here is a worked example with every assumption stated. An 80 unit Class B property, average rent 1,250 dollars a month. Gross potential rent: 1.2 million dollars a year. Assume 8 percent economic loss for vacancy and credit: 1,104,000 dollars collected. Assume operating expenses at 50 percent, typical for this vintage: net operating income of 552,000 dollars. At a 6.25 percent cap rate the indicated value is about 8.8 million dollars.

Now size the new loan. At 60 percent loan-to-value, the value supports about 5.3 million dollars. At a 1.25 times debt service coverage ratio, a 6.75 percent rate, and 30 year amortization, the income supports about 5.7 million dollars. The lender takes the smaller number: 5.3 million.

Suppose the maturing balance from the 2021 financing is 6.9 million dollars. The refinance comes up roughly 1.6 million dollars short. That is the gap. It is not a distressed property. It is a stabilized, occupied, functioning asset whose debt was sized in a different world. The owner has to bridge the difference with mezzanine debt, a preferred structure from the capital source, cash, or some combination, or sell into a soft market, or hand the keys back.

The gap band we see most in DFW runs one to five million dollars, which is the awkward size: too small for institutional debt desks, too structured for most local banks. Solutions exist, but they take time to arrange, and time is the one thing a maturity date does not extend.

If your loan was placed between 2019 and 2022, the useful move is to run your own numbers before anyone else runs them for you. Our gap estimator does the math above with your figures in about sixty seconds.

The full thesis, with the sensitivity math and where the wall concentrates in DFW, is in our first research paper. Get it on the resources page.