Chatham Financial has executed over $100 billion total notional defeased, and returned over $169 million in residual value to borrowers. Defeasance consultants are a part of Chatham's global real estate financial risk management practice, solving common but complex capital markets challenges for commercial and multifamily real estate investors.
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As rates fall dramatically, many borrowers consider the possible benefits of refinancing fixed-rate loans. CRE borrowers should consider refinancing floating-rate loans with embedded floors.
Defeasance is the process through which a borrower is released from the obligations of its debt. The borrower purchases a portfolio of government bonds to serve as replacement collateral for the debt.
While CMBS can be accretive to returns, it can also impair them; borrowers that refinance or sell mid-term will be forced to repay loans early, triggering a potentially painful exit.
Successor borrower rights are a material defeasance consideration, not just at the time of defeasance but at origination as well.
Both yield maintenance and defeasance allow borrowers to unencumber the underlying real estate asset. from a legal and economic perspective, the two processes are fundamentally different.
When deciding to prepay your fixed rate CMBS debt, whether through yield maintenance or defeasance, most borrowers have questions. View Chatham's list of yield maintenance and defeasance FAQs.