About Our Defeasance Services
Waterstone has a stellar reputation in the defeasance industry due to our transparent approach, unmatched customer service and cost saving ideas for our clients.
What is Defeasance?
In commercial real estate, defeasance is a process a borrower may need to go through when selling property or refinancing a loan encumbered by CMBS debt. Defeasance is a substitution of collateral activity where a portfolio of government securities are purchased from new loan proceeds, and the cash flow from these securities are used to satisfy the remaining debt service of the existing CMBS loan. The CMBS loan is subsequently assumed by a Successor Borrower, which is an entity created to hold the securities and make the future ongoing monthly loan payments.
The process can be complicated, and it is common for borrowers to engage a consultant on their behalf to help them navigate through the process since it involves structuring a portfolio of approved securities and coordinating the activities of multiple parties to meet closing schedules.
The professionals at Waterstone Defeasance will make sure that all of the details are covered for you, so the defeasance will go smoothly and closes on time.
What are the Fees?
Fees will vary by servicer and by loan size, but typical third party fees range from $50,000 to $75,000. Fees are set by the various parties and tend to be non-negotiable since defeasance has become a standardized process. However, discounts may be given for multiple loans within the same securitization.
Below is an example of typical third party fees:
Servicer | $10,000 – $25,000 |
Servicer’s Counsel | $15,000 – $20,000 |
Accountant | $3,500 |
Securities Custodian | $5,000 |
Successor Borrower | $5,000 |
Defeasance Consultant | $10,000 – $15,000 |
Rating Agency | $7,500 |
Total | $50,000 – $75,000 |
Who is Involved?
ORIGINAL BORROWER
This is the current noteholder of the loan.
BORROWER’S COUNSEL
The current Borrower is required to be represented by legal counsel as part of the defeasance transaction.
SERVICER
The Servicer may be different from the lender that originated the loan. The servicer is the group that currently receives the monthly loan payments, and represents the interests of the lender under the loan documents.
SERVICER’S COUNSEL
The Servicer will engage outside counsel to represent their interests as Lender. Servicer’s Counsel in large part controls the defeasance process on behalf of the Servicer.
VERIFICATION ACCOUNTANT
An independent accounting firm will review the adequacy of the defeasance securities portfolio to verify it will be sufficient to make the remaining loan payments.
SECURITIES CUSTODIAN
The pledged securities portfolio will be held by a major banking institution who is responsible for remitting the remaining loan payments to the Servicer until the loan matures.
RATING AGENCIES
The involvement of the Rating Agencies may not be required – it is usually based on the size of the loan being defeased or the percentage of collateral it represents in the securitization.
NEW LENDER
Proceeds from the new loan will be used to purchase the defeasance securities. The defeasance process is designed around the closing schedule of the new takeout loan.
TITLE COMPANY
The Title Company is the escrow agent typically engaged by the New Lender to close the new takeout loan. They play an important role during the defeasance closing process as they are the party responsible wiring the proceeds from the new loan to purchase the defeasance securities.
Frequently Asked Questions
You can use our calculator for quick estimates, or you can contact us directly for a more accurate estimate of fees unique to your loan documents.
Our defeasance experts will review your loan documents to determine if this may be an option for your particular transaction.
Please call us to learn more about this important opportunity.
WHAT ARE THE NEXT STEPS?
Your next step is to give notice of your intent to defease the loan to the Servicer, as required in your loan documents. Loan documents typically require the borrower to give notice within 60 to 90 days of your projected closing date. The Servicer will then require various up-front deposits be paid. Once these have occurred, the Servicer will engage its outside counsel to commence the defeasance process with the various parties.
Waterstone Defeasance will coordinate this initial communication on your behalf, ensuring the process gets out of the gates smoothly. Contact us today to discuss your Next Steps in more detail.