Commercial Loan Defeasance and Self-Storage: Structures, Excecution, Partners and More

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Many conduit loans originated between 2004 and 2007 carry fairly attractive interest rates, have a fair amount of term left to maturity, and are good candidates to be assumed when defeasance doesn’t make sense. Many properties are often dually marketed with their existing debt or delivered free and clear with defeasance. Each case is different and unique based on property specifics, existing debt and buyer intentions.

Recently, a portfolio of six self-storage properties, all with similar interest rates and terms to maturity, were sold to a public real estate investment trusts. However, due to various internal factors, three properties were defeased to facilitate new refinancing, while the other three existing notes were assumed. Situations like this happen all the time, so it’s always prudent to have every exit/transaction strategy available for analysis since very few transactions are alike and happen for the same reasons.

With so few exit strategies available for CMBS loans, there are still numerous variables to consider. Every defeasance needs to make fundamental economic sense before considering a sale or refinance. While online calculators, such as DefeaseWithEase.com, can provide a useful preliminary estimate, it’s important to consult with only the most experienced and knowledgeable defeasance facilitators who understand the details of each and every transaction.

An experienced facilitator can explain the process, structure an efficient securities portfolio, and proactively manage the completion of the various checklist items to meet the borrower’s closing schedule. For more specialized types of defeasance transactions, like partial, multi-loan or New York-style defeasances, it’s even more important to engage an experienced facilitator whose familiarity with lender requirements for such transactions will keep the defeasance on track.

Knowledge, responsiveness and proactive transaction management save valuable time and money, so the borrower, broker and borrower’s counsel can focus on the sale or refinancing with complete confidence that the defeasance will close on schedule.

Based in Chicago, Shawn Hill is a principal at The BSC Group, where he provides mortgage brokerage, financial consulting, and loan-workout solutions to self-storage real estate owners nationwide. He can be reached at 312.207.8237; e-mail shill@thebscgroup.com ; visit www.thebscgroup.com .

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