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Course Details

Course Information
  • smart_display Format

    On-Demand

  • signal_cellular_alt Difficulty Level

    Intermediate

  • work Practice Area

    Real Property - Finance

Date & Time
  • event Date

    Tuesday, June 11, 2024

  • schedule Time

    1:00 p.m. ET./10:00 a.m. PT

  • timer Program Length

    90 minutes

Credit Information

  • This 90-minute webinar is eligible in most states for 1.5 CLE credits.

$347.00
CLE
ALL

This CLE webinar will discuss the process and complexities of a defeasance transaction within the context of commercial mortgage-backed securities (CMBS) loans. The panel will discuss the appropriate timing and documentation of a defeasance transaction, costs, prepayment and lockout provisions, risks, benefits and strategies, and action items for borrowers and lenders.

Faculty

Scott MacPherson
Senior Associate
Patel Law Group, PLLC

Mr. MacPherson represents clients in finance, commercial real estate, and various other types of business transactions. He has represented buyers, sellers, and lenders in a wide variety of commercial and residential real estate transactions working with a multitude of communities and cultures. In addition, Mr. MacPherson has helped his clients form companies and corporations for new ventures and business acquisitions. He is also involved in asset management for national, hard money lenders and has managed over $2B in his national portfolio.

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Benjamin F.S. Herd
Partner
Holland & Knight LLP

Mr. Herd’s national practice focuses on real estate finance and commercial real estate. He has represented CMBS lenders in hundreds of loan origination transactions, as well as whole loan sales, syndications and "b-note" purchases/sales. Mr. Herd also represents special servicers in relation to defaulted or troubled loan workouts, maturity default resolution, collateral foreclosure, lease negotiation and the sale of real estate-owned property. Mr. Herd assists national and regional banks in complex commercial loan transactions, including ground leases, tenants-in-common, and acquisition and multi-tranche construction financing. He also provides advice and counsel to developers of large commercial projects, including Class A multifamily complexes, large retail shopping centers and office towers. Additionally, he advises borrowers in the defeasance of permanent debt facilities.

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Gavin C. Wait
Shareholder
Polsinelli

Mr. Wait is a member of Polsinelli’s Real Estate Finance practice, where he focuses on representing lenders and borrowers in a wide array of real estate financings. He excels at finding solutions to complex problems, whether strategic, technical or relational. His ultimate goal is to manage engagements and handle complex agreements to ensure successful operation and growth. Mr. Wait is committed to providing efficient legal solutions to real estate clients within the finance industry.

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Description

Most CMBS borrowers wanting to prepay their loan must go through a process known as defeasance, which involves replacing the collateral and interest income that the lender will lose as a result of prepayment with alternative securities, often U.S. Treasury bonds. This process protects the economic expectations of the CMBS investors while allowing the borrower the flexibility to sell and/or refinance its property free of the mortgage loan.

Defeasance can be a cost-effective way to prepay a loan depending on the market environment. It can be beneficial when interest rates are rising because the treasury bonds used as replacement collateral for the loan become less expensive to purchase, leading to substantial savings. When interest rates are falling, the cost to an investor may not be much worse than what they would be required to cover through loan yield maintenance.

The loan defeasance transaction is a specialized and potentially time intensive process with benefits and risks for both lenders and borrowers. Loan servicer's counsel will typically prepare a set of defeasance documents that are dictated by the substantive terms of the existing loan documents and will generally include details about the securities the lender will accept, the appointment of a successor borrower, and the commencement of the defeasance process.

Listen as our authoritative panel of commercial real estate finance attorneys guides you through a CMBS loan defeasance transaction and provides best practices for counsel representing borrowers and lenders in these transactions.

Outline

  1. Overview: current market conditions and when defeasance makes sense
  2. Defeasance vs. prepayment or a loan assumption
  3. Economics of defeasance: costs vs. benefits
  4. Defeasance issues and strategies for borrowers
  5. Defeasance risks for lenders
  6. Process and timing for defeasing a loan
  7. Documenting the transaction
  8. Key takeaways

Benefits

The panel will discuss these and other relevant issues:

  • What market forces are currently impacting CMBS loans?
  • What is the rationale for requiring defeasance in CMBS and other commercial real estate loans?
  • What are the distinctions between prepayment and defeasance and how do these distinctions impact the borrower and lender differently?
  • What are the costs vs. benefits of defeasance for borrowers and lenders?
  • What are key strategies for documenting and closing the defeasance transaction?