Defeasance and Yield Maintenance

Defeasance and Yield Maintenance are two methods that borrowers have for getting out of existing real estate debt. Yield Maintenance is an actual prepayment of a loan, and is most common in agency loans and those originated by balance sheet lenders. Defeasance is actually a substitution of collateral and assignment of debt and is most often seen in securitized, CMBS debt. Chatham has vast experience with both alternatives and invites you to take advantage of our online calculator to estimate your yield maintenance penalty or to estimate the cost of defeasing your loan.

Defeasance Consulting Services
The Defeasance Team at Chatham Financial has been an industry leader for nearly a decade, completing over 800 defeasances with a total balance over $24 billion on behalf of our clients, including the largest commercial real estate loan ever defeased ($1.2 billion).  Our goal is to guide you through the complexities of the defeasance process while maximizing cost savings along the way:

  • Structuring Collateral:  Chatham structures the defeasance collateral using the most efficient portfolio of securities available.
  • Purchasing Collateral:  Chatham holds a competitive auction for the purchase of the defeasance collateral thereby ensuring that you receive the most competitive portfolio pricing available. Chatham receives no brokerage fee or commission on the purchase of the securities.
  • Successor Borrower:  Chatham establishes the Successor Borrower entity, taking assignment of the defeasance collateral and assuming the remaining financial obligations of the loan, including short-fall liability, an important consideration if a borrower wishes to consider the defeasance an “extinguishment of debt.”
  • Residual Value:  Chatham returns a portion of the residual value from the Successor Borrower account either at the close of the defeasance or at maturity. The first in the industry to disclose and sharing the residual value, to date, Chatham has returned over $46 million to our clients. Your defeasance could have tens or hundreds of thousands of dollars of residual value.
  • Hedge Your Risk:  The Defeasance Team is able to draw upon on Chatham’s 17-year history of advising clients on interest rate risk management to develop and implement strategies that protect the cost of your defeasance collateral.

Throughout the industry, Chatham is known for its experience and expertise in handling defeasance transactions of all sizes, from the largest, most complex multi note transactions to small balance, single asset loans.  As your consultant, Chatham will take the time to educate you about the defeasance process and will take on the significant administrative burdens that are inherent to a defeasance so that you can focus on closing the deal.

“We have used other companies for defeasance transactions in the past and I can say, from my experience, that Chatham delivers the best service to the client. We will be calling Chatham for our future defeasance needs.”

— Raj Hingorani, Principal, Trivium Investment Management Co.

Learn how Chatham Financial helped a public real estate company defease a loan using proceeds from a TALF qualified securitized loan. Read our case study