Dealmaker: Waterstone Defeasance Closes Two Transactions Totaling $27M

Waterstone Defeasance, Charlotte, N.C., closed two defeasance transactions for commercial mortgage-backed securities loans totaling $32.1 million. 

Defeasance occurs when a borrower substitutes new collateral, generally Treasury securities, to pay off a loan locked out from prepayment. The Treasurys replicate the loan’s cash flows over time, making the lender whole.

In the first defeasance, a Massachusetts industrial and warehouse property portfolio secured a $25.2 million commercial mortgage-backed securities loan. Waterstone led the owners through the process when they sold one collateral property and refinanced the remaining three.

“What makes this interesting is that the economics of the transaction inevitability drive the defeasance analysis,” said Waterstone Managing Director John Felter. “In this case, because the underlying assets were going to be used as a development site, it drove the cost-benefit discussion and ultimately the decision.” 

Waterstone also closed a defeasance transaction for a $1.3 million CMBS loan secured by a Michigan multifamily property. As the defeasance consultant, the firm managed parties including the loan servicer and counsel, the borrower and counsel, the securities broker, custodian, accountant, rating agencies and the successor borrower.

“This transaction shows continued strength in the commercial real estate market across the country,” Felter said. “This translates into price appreciation and very competitive market interest rates across most markets and asset classes.”