The Beverly Hills owner of the office building refinanced property with Washington Mutual Bank. The owners were represented by Parklane Investments and George Smith Partners. Farzin Emrani, a vice president with George Smith Partners, says that the defeasance "played a pivotal role in helping us close a large loan in a very short time frame."
Defeasance is a substitution of collateral in which a portfolio of government securities replaces the real estate as the collateral for a commercial loan. Redemption of principal and interest from the securities pays all remaining debt service, so the promissory note technically remains in place but is repaid from the proceeds of the securities purchased. The securities are typically purchased with a portion of the proceeds of a sale or refinance, so the defeasance transaction is usually coordinated with a related real estate transaction. Most fixed-rate conduit/CMBS loans originated since 1998 have defeasance provisions written into the loan documents.
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