Are smart retail borrowers defeasing now?

Borrowers sprinted to defease their retail properties in the early months of 2015.

graphicAbout 300 percent more borrowers defeased loans for retail properties in the first quarter this year compared to 2014, according to a Defease with Ease® analysis of Bloomberg data. The trend signals the Wall of Maturities, along with fear of rising rates, is prompting a greater sense of urgency to consider a sale or refinance of their CMBS loan early. Approximately $300 billion in defeasance-eligible loans will mature between now and 2017.

The numbers show approximately 107 retail properties completed the defeasance process since the beginning of 2015.  Only 35 deals defeased in the same time frame a year ago. So far this year, 6.92 million-square-feet of retail property has benefited from a defeasance.

 

The data suggests 2015 will far outpace 2014 in total defeasance volume.  In addition, the average cost of defeasance for retail properties in 2015 has dropped .5% to approximately 10% (of the current loan balance), according to our analysis. This is primarily due to shortening the term to maturity as fewer remaining interest payments equates to lower defeasance costs.  Defeasance for many is a waiting game and seeing that exit number come down slightly over time, also carries the risk of volatility in rates and loan spreads.

“It’s no mystery the wave defeasance activity is a direct correlation of increasing maturities and borrowers feeling opportunistic about rates.” says Jeff Lee, Chief Operating Officer at Commercial Defeasance, LLC. “The question we’re beginning to ask now is: How will macroeconomic factors in the years ahead impact newer vintage loans and their potential exit strategies? The keys to this answer lie in basic property fundamentals and where mid-term rates are.”

Our Defease with Ease® experts will be on hand at the 2015 International Council of Shopping Centers annual RECon global convention in Las Vegas May 17 to 20. Bring your questions about defeasance and schedule an appointment to get feedback from our team. Visit our booth at S372S, located in the upper level of the South Hall at the corner of S Street and 38th Ave.