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Report: Rising CMBS defeasance a positive sign

by Reg Clodfelter

The volume of defeased CMBS loans skyrocketed from an average of $3.3 billion per year from 2009 to 2011 to $11.8 billion in 2013 and a projected $12.7 billion in 2014, indicating improving loan fundamentals, according to the latest report from Trepp, Defeasance Trends Indicate Improving Fundamentals and Value.

Loan defeasance occurs when a borrower replaces the loan with new collateral, often in the form of cash Treasury securities, to replicate the loan’s cash flows. Trepp points out that defeasance is usually funded by a simultaneous property sale or refinance.

According to the report, “lower interest rates coupled with a recovery in property fundamentals and appraised values have made defeasance an option for many commercial real estate borrowers who wish to lock in a lower rate or take cash out of their properties.”

Loans eligible for defeasance typically have strong

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