More borrowers are using defeasance to release properties from securitized mortgages so they can take advantage of improving market conditions to sell or refinance the assets, according to Commercial Mortgage Alert.
Some $5.9 billion of U.S. loans in commercial MBS collateral pools were defeased last year, up 21% from $4.9 billion in 2011, according to a draft of an annual Moody’s report to be released March 25. Defeasance volume is likely to keep rising at roughly the same rate this year, according to Sandra Ruffin, a vice president at the rating agency.
The tactic has steadily grown in popularity over the last three years as property values have recovered, credit has become more available and interest rates have remained historically low. For property owners, the ability to refinance at a low rate or sell at a good price can outweigh the cost of defeasance.