Why You Should Say Yes to Paying a Defeasance Fee

Gary Tenzer

With interest rates increasing, some investors are taking a moment to review their loan portfolio to see where they can mitigate the potential impact of higher rates. G.H. Palmer has been fervently combing through his portfolio for nearly a year—and he has seen big benefits in refinancing early and paying a pre-payment penalty to get into a more profitable loan structure. Gary Tenzer, co-founding principal at George Smith Partners, has been guiding the process. The most recent refinance under this model is the $158.8 million in financing for Colony Townhomes, a 752-unit multifamily property located in the Canyon Country community of Santa Clarita, which GlobeSt.com has learned of exclusively. The new loan replaces a HUD loan, also arranged by Tenzer. It is interest-only and non-recourse at a fixed rate of 4.29% for a 10-year term, and has a 65% loan to value.

While Tenzer has worked with Palmer to secure several of these loans, this one was a little different. “On this deal, we were taking out a HUD loan, so the economics are a different. The other loans had only two or three years left until maturity,” Tenzer tells GlobeSt.com. “This loan had 23 years left until maturity. The way that the pre-payment penalty works with HUD is that there is a step-down prepayment. We were within a period of time where it made economic sense to pay it off at the prepayment penalty relative to the benefits.”