Defeasance
Defease With Ease (Commercial Defeasance)
Defease With Ease | Thirty Capital facilitates defeasance of CMBS and other fixed-rate commercial mortgages and advises on interest rate hedging, yield maintenance, successor borrower services, and debt management.
On a defeasance the firm works as the borrower's consultant: it prepares a preliminary cost analysis, formally opens the process with the servicer, builds and optimises the portfolio of qualifying government securities, coordinates the parties, and drives the transaction toward the borrower's target closing date. A dedicated deal manager runs each transaction, and the firm says it handles both large multi-loan portfolio defeasances closing across several servicers on the same day and small balance loans.
Securities are purchased through broker-dealers at a nominal fixed fee disclosed up front rather than through a competitive bid process, which the firm argues can hide mark-ups inside the securities price. Its affiliated Defeasance Holding Company entities provide successor borrower services and return residual value to originators, borrowers, and servicers. Related services include interest rate hedge modelling and cap brokerage across swaps, caps, collars, swaptions, and cancellable swaps, yield maintenance calculations, and a debt management scorecard that models refinance timing month by month over a five-year horizon against forward interest rate curves. Free calculators for defeasance, yield maintenance, SOFR cap valuation, and life of loan are published on the site.
The firm facilitated its first CMBS defeasance in 2000 and describes over 25 years in the market. It states that its Defeasance Holding Company entities have assumed over 12,000 loans with collateral portfolios totaling over $150 billion. Defeasance transaction costs, excluding the borrower's own counsel, generally run $45,000 to $65,000 in aggregate when the borrower uses the firm's network of third-party providers, with the broker-dealer securities fee fixed at $1,500 to $5,000 depending on loan size.
Best for
Borrowers with a CMBS or conduit loan who must defease in order to sell or refinance, including multi-loan portfolio defeasances across several servicers, plus owners weighing hedging or refinance timing.
What they do
- CMBS defeasance facilitation
- Defeasance cost estimates and calculators
- Successor borrower services
- Yield maintenance calculations
- Interest rate hedging advisory and cap brokerage
- Debt management and refinance timing analysis
- Securities portfolio structuring for defeasance
Details
| Attribute | Value |
|---|---|
| How they charge | Defeasance transaction costs generally run $45,000 to $65,000 in aggregate, excluding borrower's counsel; the broker-dealer securities fee is fixed at $1,500 to $5,000 by loan size. |
What stands out
- Facilitated its first CMBS defeasance in 2000 and describes over 25 years in the market.
- States its Defeasance Holding Company entities have assumed over 12,000 loans with collateral portfolios totaling over $150 billion.
- Defeasance transaction costs generally run $45,000 to $65,000 in aggregate, excluding the borrower's own counsel.
- Broker-dealer securities fees are fixed at $1,500 to $5,000 depending on loan size and disclosed up front.
Common questions
- What is a defeasance?
- Defeasance is a substitution of collateral. A portfolio of qualified government securities is structured so that redemption of principal and interest produces enough cash flow to make the remaining loan payments as they come due. The securities are pledged to the lender in exchange for releasing the real estate from the lien of the mortgage. Conduit loan defeasances involve many parties and take about thirty days to complete.
- How do I know whether my loan requires defeasance?
- Most commercial real estate loans originated after 1998 contain a defeasance clause, but the loan documents decide it. The two-to-four-page defeasance section is usually found in the note, the mortgage, or the loan agreement where there is a separate one.
- When can a loan be defeased?
- Most defeasance clauses prohibit defeasance for the lesser of three years from the date the loan closed or two years from the date the lender securitized it. That lock-out period varies from loan to loan, and the second test runs from securitization into a REMIC trust, not from the closing date.
- How much does a defeasance cost?
- There are two components: transaction costs and the cost of the substitute securities. Transaction costs generally run $45,000 to $65,000 in aggregate, excluding the borrower's counsel fee, when the borrower uses the firm's network of third-party service providers, and vary with loan size, transaction complexity, and the servicer's and its counsel's fees. The securities purchase is the larger component, and the firm uses a fixed, disclosed broker fee rather than a competitive bid process.
- How long does a defeasance take?
- Loan documents typically require 30 to 60 days' prior written notice to the servicer. Some servicers will expedite the process, though they may charge an additional fee. The firm says it has closed defeasances in less than a week in emergencies, but recommends following the notice requirement in the loan documents wherever possible.
- What securities are used as substitute collateral?
- Direct obligations of the United States that mature as close as possible to each date on which proceeds are needed for a payment under the note, and that are not callable or subject to early redemption. A typical portfolio holds anywhere from five to fifty securities depending on the remaining loan term, usually a mix of T-Bills, T-Notes, and STRIPS unless the loan documents permit agency debt.