Facilitating complex defeasance transactions since 2000
No other company possesses our depth of knowledge, breadth of experience and industry relationships. This is what makes us the first choice among commercial real estate owners, brokers and attorneys.
Our proven approach
Since pioneering the defeasance business in 2000, we have assembled a dedicated team that offers clients the most extensive experience in the industry. We defease loans on all property types with all servicers and lenders nationwide. Whether you have a small, single loan or large, complex portfolio, Commercial Defeasance is unmatched in customer service, experience and innovation.
The defeasance process
We take care of the entire defeasance - from the very beginning to the very end - by proactively managing every step of the process.
We understand that most defeasances are driven by a sale or refinance with its own deadlines and urgency. No matter who services your loan, we actively drive the defeasance process to ensure that the defeasance is ready to close when your sale or refinance is ready to close.
Extensive Experience
Commercial Defeasance has closed:
- More defeasances than anyone in the industry
- Thousands of transactions with every master servicer
- Many of the largest and most complex defeasances to date
- Numerous partial defeasances and whole portfolio defeasances
- Numerous “New York-style” defeasances
Industry Innovations
Commercial Defeasance has pioneered many industry firsts:
- The first online defeasance calculator
- The first Canadian CMBS defeasance
- The first CMBS defeasance to use a synthetic security
- The first New York-style defeasance in Florida
- The first to make a PV payment
We handle every step of the defeasance process from beginning to end
The defeasance process typically takes 30 to 45 days to complete. It can be completed quicker in certain circumstances, but many servicers charge an additional fee for expediting a transaction. We have closed defeasances in less than a week from engagement to rating agency approval to closing, but borrowers should engage us as soon as the sale contract is signed or the lender's commitment letter is issued for a refinance. It's never too early to start discussing a future transaction with us, but 60 to 90 days prior to the anticipated closing date is ideal. You can engage us by signing and returning an engagement letter along with any applicable deposits.
Once engaged, we proactively manage every step of the process by:
- Providing unlimited, free defeasance cost estimates and seeking ways to save the borrower money
- Assigning a knowledgeable, responsive, experienced deal management team to the transaction and hosting the initial conference call
- Working with the borrower, counsel and other parties throughout the process to ensure that the various requirements in the loan servicer’s checklist are completed in a timely manner to meet the borrower’s closing deadline
- Communicating with all parties involved throughout the process and providing status reports and securities cost updates along the way
- Coordinating the 2 or 3 day closing process that includes the final structuring and purchase of the securities portfolio through the broker-dealer
Standard Defeasance Documents
Here’s an overview of the important documents:
Document
Prepared by
Defeasance Pledge and Security Agreement
Servicer Counsel
Defeasance Account Agreement
Servicer Counsel
Defeasance Assignment, Assumption and Release Agreement
Servicer Counsel
Borrower's Certificate
Servicer Counsel
Defeasance Waiver and Consent
Servicer Counsel
Accountant's Verification Report
CPA Firm
New York Perfection Opinion*
Servicer Counsel
Borrower Enforceability Opinion*
Borrower Counsel
REMIC Opinion
Servicer Counsel
Successor Borrower Substantive Bankruptcy Non-Consolidation Opinion
Successor Borrower Counsel
Successor Borrower Enforceability Opinion
Successor Borrower Counsel
* Note: All CMBS defeasance documents are governed by New York law regardless of where the real property is located. The borrower must engage an attorney to review the defeasance documents, explain them to the borrower and issue an opinion letter.
Key Defeasance Services
We manage the process of defeasing commercial loans by assigning an experienced, responsive deal management team to coordinate every step. Our proactive approach allows the borrower, borrower’s attorney and broker to focus on the sale or refinance with complete confidence that the defeasance will close on time.
Our key defeasance services include:
- Notifying the servicer of a borrower’s intent to defease
- Actively managing the process and parties to meet closing deadlines
- Structuring a highly efficient securities portfolio
- Exploring residual value sharing opportunities
- Obtaining servicer, special servicer and rating agency consents
- Preparing documents and reports to streamline the process
- Updating cost estimates and status reports throughout the process
- Leveraging our extensive experience and relationships to make your transaction smoother and more efficient
Cost
We have assembled a strategic network of third-party service providers to simplify
the defeasance process and lower the transaction costs. A defeasance transaction can include
as many as 25 people, and our deal management teams actively coordinate all the parties involved.
By working tirelessly to ensure that the closing occurs on the borrower’s schedule, we help
our clients avoid costly delays.
The cost of a defeasance is comprised of the cost of the government securities and third-party
transaction fees. The cost to purchase the government securities is a function of the difference between
the interest rate on the loan and the yield on the government securities. Unless the borrower purchases
hedging instruments at an additional cost, the final securities price cannot be determined until the securities
are purchased at closing.
If you’re interested in locking in the cost of the securities in advance of closing, please contact us.
Securities Purchase
The single largest cost of any defeasance transaction is the cost to purchase the securities.
We structure and optimize each portfolio of government securities internally to incorporate the highest
yielding collateral allowed under the loan documents and available in the marketplace. Our
commitment to cost savings, use of advanced portfolio optimization technology and vast experience
at structuring defeasance portfolios combine to yield a highly efficient portfolio of securities for
our clients. Because we have the technology to monitor the broker's pricing relative to market pricing,
we are the only company that confirms in writing that there will be no hidden broker fees in the securities
cost. This transparency can help save each borrower thousands of dollars on the cost of the securities alone.
To learn why a negotiated, fixed broker fee arrangement is better than a so-called
competitive bid process, read this FAQ.
Range of Third Party Fees
Description
Dollar Amount
Servicer - reviews and processes defeasance request
$7,500 - $30,000
Special Servicer - (if required) approves defeasance
$0 - $5,000
Custodian/Securities Intermediary - holds the securities and makes ongoing P&I payments
$4,000 - $12,000
Servicer's Counsel – drafts defeasance documents, provides REMIC opinion and ensures all defeasance reqs are met
$12,500 - $25,000
Accountant – verifies that the securities are sufficient to meet the ongoing principal and interest obligations of the loan
$3,500
Successor Borrower – assumes securities and defeased loan obligations, provides required due diligence and opinions
$4,000 - $11,000
Rating Agency – (if required) reviews documentation and issues “no-downgrade” letter
$0 - $15,000
Commercial Defeasance – manages every step of the process
$13,000 - $25,000
Total
$44,500 - $124,500
* Note: All CMBS defeasance documents are governed by New York law regardless of where the real property is located. The borrower must engage an attorney to review the defeasance documents, explain them to the borrower, and issue an opinion letter.
This was one of the simplest financial transactions I have participated in during my twenty five years in the real estate industry. All I had to do was sit back and watch. The process took only two weeks and was handled in a very professional manner.
Lionel Wazny
CFO, Concert Real Estate Corp., Vancouver, BC
I worked with Commercial Defeasance on an office building transaction and found their service, execution and knowledge excellent. They are true professionals.
Ernie Hee
Boughton Law Corporation, Vancouver, BC
Much like how an Olympic athelete makes their sport seem effortless, the actual defeasance went perfect. On time and below cost, I couldn’t have been more pleased with the wonderful work of Commercial Defeasance.
Robert J. Fleck
President, Canadian Self-Storage Assoc., Carp, Ontario
FAQs
You probably have some questions - and we've got the answers.
What is defeasance?
How do I know if my loan requires defeasance?
When can I defease my loan?
How much does a defeasance estimate cost?
Defeasance is a substitution of collateral. A portfolio of qualified government securities is structured such that the redemption of principal and interest from the securities will produce sufficient cash flow to make the remaining loan payments as they come due. The securities are pledged to the lender in exchange for the lender’s release of the real estate from the lien of the mortgage. Conduit loan defeasances involve many parties, require a number of deliverables, and take about thirty (30) days to complete. Contact us to start the process.
Most commercial real estate loans originated after 1998 contain a defeasance provision, but you should check your loan documents to be sure. The two to four page defeasance section typically can be found in either the note, the mortgage or the loan agreement (if your documentation includes a separate loan agreement). We can help you determine if your loan contains a defeasance provision, if you contact us.
Most defeasance provisions in existing loans prohibit defeasance for the lesser of (a) three years from the date the loan closed, or (b) two years from the date the loan was securitized by the lender. However, this “lock-out period” can vary from loan to loan, so it is important to review your loan documents to determine the lock-out period that applies to your specific loan. Note that the second prong of the lock-out period is based upon when the loan was securitized (i.e. transferred by the lender to a REMIC trust); not the date the loan closed. Contact us, and we can help you determine when the lender securitized your loan.
One of our experienced team members will be happy to provide you with a cost estimate at no charge, if you contact us. The most accurate estimate can be attained by having one of our originators review the applicable sections in your loan documents. We provide written estimates promptly and are happy to answer all of your questions. You may also visit our online calculator to run your own estimate. It includes helpful prompts, but you can always call us for assistance.