Newer multi-family defeasances increase as Wall of Maturities nears

14425526680_d34d3b66e6Over the past several years, multi-family loans have consistently defeased in greater volume than any other property type.

Due to sustained low rates and continued strength in the sector, owners of multi-family properties are moving at a quickening pace to defease loans against their properties. The intent is to maximize proceeds from disposition or refinance loan proceeds as the Wall of Maturities inches closer.

A Defease with Ease analysis of historical market data shows nearly 900 properties representing $8.5 billion in multi-family loans have been defeased since 2012, with the majority taking place in the last 12 months.

A notable trend since 2012 has been a dramatic increase in newer-vintage Freddie Mac ‘K-Series’ loans, which generally carry favorable rates and much longer terms to maturity.  With interest rates so low, there is little yield for the replacement collateral (short term US Treasury Rates), so many borrowers are choosing to shorten the remaining term to reduce defeasance costs (fewer interest payments to defease); typically between two and 2.5 years to maturity from the defeasance date.

Freddie Mac loans, with nearly 4.5 years of remaining term, have been a recent anomaly.  Over the next week we will rationalize this trend as it also provides insight into the future of defeasance.