{"id":1004748952,"date":"2025-03-05T11:04:46","date_gmt":"2025-03-05T19:04:46","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004748952"},"modified":"2025-03-05T11:08:02","modified_gmt":"2025-03-05T19:08:02","slug":"why-you-should-consider-loan-defeasance","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/why-you-should-consider-loan-defeasance\/","title":{"rendered":"Why You Should Consider Loan Defeasance"},"content":{"rendered":"\n<p><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"alignright size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"800\" height=\"620\" data-attachment-id=\"1004748954\" data-permalink=\"https:\/\/www.commercialsearch.com\/news\/why-you-should-consider-loan-defeasance\/chris_hall_2022_5x7\/\" data-orig-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/Chris_Hall_2022_5x7.jpg\" data-orig-size=\"800,620\" data-comments-opened=\"0\" data-image-meta=\"{&quot;aperture&quot;:&quot;8&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;NIKON D850&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;1645040342&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;92&quot;,&quot;iso&quot;:&quot;400&quot;,&quot;shutter_speed&quot;:&quot;0.00625&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;1&quot;}\" data-image-title=\"Chris_Hall_2022_5x7\" data-image-description=\"\" data-image-caption=\"&lt;p&gt;Chris Hall&lt;\/p&gt;\n\" data-large-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/Chris_Hall_2022_5x7.jpg?w=800\" src=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/Chris_Hall_2022_5x7.jpg?w=800\" alt=\"Headshot of Chris Hall\" class=\"wp-image-1004748954\" style=\"width:400px\" srcset=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/Chris_Hall_2022_5x7.jpg 800w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/Chris_Hall_2022_5x7.jpg?resize=300,233 300w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/Chris_Hall_2022_5x7.jpg?resize=768,595 768w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><figcaption class=\"wp-element-caption\">Chris Hall<\/figcaption><\/figure><\/div>\n\n\n<p>Defeasance has always been a critical financial mechanism for commercial real estate investors looking to sell or refinance properties with prepayment restrictions. But today\u2019s rising interest rate environment has created opportunities that investors shouldn\u2019t overlook. Defeasance costs in many cases are now lower than the outstanding loan balance, offering potential savings that can be game-changing.<\/p>\n\n\n\n<p>Let\u2019s explain how defeasance works, why it\u2019s so valuable and what makes today\u2019s market particularly advantageous for those considering loan defeasance.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-loan-defeasance\">What is loan defeasance?<\/h2>\n\n\n\n<p>Most CMBS and Freddie Mac fixed-rate loans include a prepayment restriction clause that prohibits early payoff, protecting the lender\u2019s projected interest income. Instead of repaying the loan outright, the borrower is permitted to defease the loan by substituting a portfolio of secure assets, such as U.S. Treasury bonds and agency bonds, as collateral for the property.<\/p>\n\n\n\n<p>These bonds generate enough cash flow to cover the remaining payments to the loan maturity date, satisfying the lender while enabling the borrower to release the property for sale or refinance. By strategically navigating this process, commercial real estate investors gain significant financial flexibility.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity has-very-light-gray-to-cyan-bluish-gray-gradient-background has-background is-style-wide\"\/>\n\n\n\n<p><strong>READ ALSO:<\/strong> <a href=\"https:\/\/www.commercialsearch.com\/news\/from-data-center-yimby-to-nimby\/\">From Data Center YIMBY to NIMBY?<\/a><\/p>\n\n\n\n<p><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity has-very-light-gray-to-cyan-bluish-gray-gradient-background has-background is-style-wide\"\/>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-today-s-market-offers-new-opportunities\">Today\u2019s market offers new opportunities<\/h2>\n\n\n\n<p>Rising interest rates have fundamentally shifted the economics of defeasance. Here\u2019s why it matters for today\u2019s investors:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Lower Defeasance Costs<\/strong>: Rising rates have reduced the price of defeasance securities\u2014specifically the government or agency bonds required to replace property collateral. This decrease has, in some cases, resulted in defeasance costs that are lower than the loan\u2019s outstanding balance.<\/li>\n\n\n\n<li><strong>A Competitive Alternative to Yield Maintenance<\/strong>: Unlike loans with yield maintenance, where the 1 percent minimum premium adds an unavoidable cost, defeasance offers a \u201cno minimum\u201d cost structure. This flexibility can unlock significant savings.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-a-real-world-example\">A real-world example<\/h2>\n\n\n\n<p>To illustrate the opportunity in today\u2019s market, here\u2019s an example of a Northmarq-originated loan. A fixed-rate Freddie Mac loan, issued at the height of the pandemic, was recently eligible for defeasance. The loan balance at the time of defeasance was $59.4 million. Because of discounting opportunities tied to interest rates, the total defeasance cost came in at a reduced amount of $55.6 million, resulting in a discount of approximately $3.8 million.<\/p>\n\n\n\n<p>While this is an extreme case, it highlights the potential upside for commercial real estate investors considering defeasance in today\u2019s environment. These kinds of results can be especially prevalent for loans issued when interest rates were near historic lows, as their yield requirements now align favorably with the higher-rate market.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-why-this-matters-now\"><strong>Why this matters now<\/strong><\/h2>\n\n\n\n<p>The market for defeasance has shifted dramatically due to macroeconomic factors, creating a window of opportunity for investors. For those with commercial loans originated in recent years, a potential discounted defeasance cost could mean the difference between a simple transaction and a multimillion-dollar savings.<\/p>\n\n\n\n<p>If you\u2019re considering a sale or refinance, now is the time to evaluate whether defeasance could unlock significant flexibility and cost savings for your portfolio. With the current market dynamics at play, defeasance is not only a powerful tool but could be the most financially advantageous move you make this year.<\/p>\n\n\n\n<p><em>Chris Hall is vice president of defeasance &amp; 1031 consulting at Northmarq.<\/em><\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>It&#8217;s an ideal time for this powerful tool, writes Northmarq&#8217;s Chris Hall.<\/p>\n","protected":false},"author":3734,"featured_media":1004748954,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21825,21684],"tags":[],"class_list":["post-1004748952","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","category-viewpoint"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v24.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Why You Should Consider Loan Defeasance - 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