CALABASAS HILLS, CA-ARCS Commercial Mortgage has entered into a strategic alliance with Commercial Defeasance LLC that will enable ARCS to provide in-house defeasance expertise for its customers. David Levine, an SVP with ARCS in San Francisco, tells GlobeSt.com that the new arrangement is designed to smooth the way for the growing number of ARCS customers who want to prepay loans but face defeasance on those loans.

ARCS customers will have access to the services of Commercial Defeasance at a discounted fee, Levine notes. “We've been involved in a growing number of transactions that need defeasance, and we were looking for a way to provide our customers with some in-house expertise to make the defeasance process as smooth as possible for them,” Levine tells GlobeSt.com.

Commercial Defeasance, based in Charlotte, NC, is known for its slogan "Defease with Ease." According to Howard Levine, president and CEO of ARCS, "The conduit market boom which started in 1997 has created refinancing opportunities from those same borrowers who are now looking for lower rates and/or more dollars. Most of these new transactions will depend on the defeasance of their existing loan.”

David Levine explains that a typical ARCS customer in need of defeasance probably has a conduit loan that was placed on a property five to eight years ago. In many if not most cases, the borrowers assumed the existing conduit debt when they bought the properties.

“There has obviously been tremendous appreciation of multifamily and commercial properties over that time, and so there is a lot of equity sitting in these deals,” David Levine says. The borrowers want to capture that equity, Levine continues, but they don't want to wait until the loans mature because of the uncertainty about where interest rates will be when the loans mature.

“Our customers are saying that they don't want to take the risk of where the rates might be two years from now, so they want to prepay the loans, but in order to prepay, they've got to defease,” Levine says. In addition, conduit loans typically impose other restrictions and were placed at higher interest rates than those available today.

ARCS provides Fannie Mae, Capital Markets, FHA, mezzanine and bridge financing, and Freddie Mac in selected regions. It has been Fannie Mae's No. 1 DUS lender for eight of the last 9 years and services a national portfolio valued at nearly $13 billion, representing more than 1,800 loans.