Bisnow Content Partner:

Ackman-Ziff

Ackman-Ziff

https://x.com/ackmanziff www.ackmanziff.com
Sponsored Content
New York Capital Markets

Prepaying Loans: What your Lender Doesn’t Want You to Know

Ackman-Ziff
When negotiating your next loan, optimize your ability to prepay quickly with the least possible penalty and procedure. We asked Ackman-Ziff managing director Marc Warren to compare the two most common early-exit strategies: Yield maintenance and defeasance.Securitized lenders like defeasance. A defeasance clause in your loan doc means buying treasuries in the bond market on behalf of your lender to prepay your loan. This process involves legal counsel, accounting opinions and title insurance, and could get expensive, complicated and time-consuming. Bankers could charge extra fees; bondholders find this process cleaner and easy to understand. Bonds backed by defeased loans make slightly higher profit for their originators than alternative forms of prepayment protection.Yield maintenance is borrower-friendly. A more streamlined process than defeasance, yield maintenance is a payment of one lump sum based on the present value of all future payments— the math is the same but the timing and excess fees figure in when using defeasance.Marc says the processes for both are actually similar, except that with defeasance, you buy a laddered set of bonds to simulate the outstanding payments due. Yield maintenance, on the other hand, only requires writing a simple check.He adds that if you do take the defeasance route, there are quality advisers to help you navigate the process (he recommends Commercial Defeasance LLC, for one). As bonds backed by defeased loans are most desired by lenders, borrowers’ interest rates are lowest for these transactions. This can be attractive when (a typically large) owner has a large enough portfolio and is comfortable refinancing or selling the asset in the “open period” at the end of the loan (typically three to six months – the lender/bondholder will “pay up” for the shortest possible window while the borrower seeks the longest). For more information from our education partner, Ackman-Ziff, click here.

Continue reading this story with a free account

Log in or register
Related Topics: Ackman-Ziff

More About Our Sponsor

| Ackman-Ziff

Ackman-Ziff Real Estate Group is the industry’s preeminent boutique real estate capital advisory firm. In business for over 90 years, the privately held company offers a wide variety of cutting-edge commercial real estate capital markets solutions, including debt and mezzanine financing, preferred and joint venture equity, sponsor equity, and investment sales.

Sign up for more articles like this
Subscribe to Bisnow's New York Newsletters
Related Stories

TPG, ACORE Raise Billions For Opportunistic CRE Funds

Newmark Cuts Earnings Outlook Despite Record Third Quarter

Battered Mortgage REIT Suspends Dividend To Preserve Cash

RXR Marketing Executive Lauren Maturo Dies At 32

Weil Gotshal Wind-Down Leaves 830K SF Hole In America's Office Market

Blackstone Mortgage Trust Reports Unexpected Q3 Net Loss

'Distress Is Finally Trading': Investors Chasing Big Discounts On Boston Office

Tyko Capital Sets New Record For Florida's Largest Construction Loan

Meet Bisnow's 2026 New York Power Women Honorees

Deutsche Bank's Asset Manager Needs To Sell To Meet Redemptions. Here's What It Owns

Related, Oxford Land Tenant For Top Floors Of 70 Hudson Yards

BXP Execs See Better Returns In Building Offices Than Buying Them