ATLANTA—Trimont Real Estate Advisors‘ defeasance business surpassed $300 million in volume during 2013. That’s 70% higher than 2012.
According to John Schwartz, who leads the firm’s defeasance practice, with uncertainty surrounding interest rates, many borrowers—especially those with only a year or two remaining on their loans—are finding paying the defeasance premium a more viable option. Defeasance allows the borrower the flexibility to refinance, sell or reposition a property in instances where prepaying the loan is not allowed.
With defeasance, the mortgage or bond is substituted for qualified collateral, usually government securities, that maintains the trust’s real estate mortgage investment conduit (REMIC) status while providing bondholders with the same payment stream they were previously receiving. Borrowers are free of the lien on the property while lenders still receive their payments.
“Our 2013 defeasance volume was the highest since 2007, and we anticipate additional growth in 2014,” says Trimont vice president John Schwartz, who leads the defeasance practice. Schwartz noted that approximately $400 billion of fixed-rate conduit loans will mature through 2017: “The massive volume of maturities in the coming years will create enormous opportunities for the commercial real estate industry.”