In order to make the asset more attractive, Matteson retained San Francisco-based Capital Defeasance Group LLC to structure and complete a $10.3-million defeasance of its CMBS loan on the property. The CMBS loan had three years remaining and an 8% interest rate.
Capital Defeasance Group principal Greg Stranger tells GlobeSt.com that in Matteson's case, without the defeasance a buyer would have had to put up much more equity than is required for a typical property acquisition and also would have had to pay an above-market interest rate. "In this case, the premium to complete the defeasance was less than the haircut the seller believed he would take [on the sale price] if it required a loan assumption," Stranger says.
In 2005, there were about 2000 defeasance transactions completed in the US, and the 2006 total is expected to come in above that thanks to a strong fourth quarter. Stranger's firm, in existence about nine months, has closed on about $100 million in defeasance transactions and has about twice that total in the pipeline. It has been attracting clients by being a lower-cost provider, he says.
Stranger says one of the things that sets his firm apart from some other defeasance firms is that he gives back the vast majority of the savings that can be had when the CMBS loan can be paid back without penalty, which in the case of Matteson's loan will be six months early. Stranger also gives back the interest that accrues when there is a difference between when the money is collected and when it gets paid out to the lender, and also helps clients do their own legal work with regard to the transaction rather than hiring outside counsel.
Matteson has completed two defeasance transactions through Capital Defeasance Group. Stranger says that it has saved Matteson about $30,000 in direct costs related to the transactions and will return upward of $250,000 in prepayment savings and interest accrual to the company when the loans are paid off. The savings equate to about 1% of the value of each transaction.
"Some companies provide similar refunds," Stranger says. "Others do not."
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