$12m defeasance deal

Real Estate Weekly, Oct 19, 2005

Commercial Defeasance, LLC recently structured and closed a $12,600,000 defeasance transaction on behalf of Eastern Properties, a Commercial Real Estate Development Company based out of Cranbury, NJ.

The transaction covered two buildings, consisting of 135,000 s/f of office and laboratory space, located at Cedar Brook Drive and Clarke Drive, in Cranbury, NJ. The two buildings are part of the Cedar Brook Corporate Center, which totals approximately 1.2 million square feet. The financing was provided by Deutsche Bank.

Eastern Properties' Chief Financial Officer said, "Commercial Defeasance handled our defeasance in a very professional manner. They provided extremely high quality of work which ensured that our defeasance closed on schedule."

In order to sell or refinance, a CMBS borrower must navigate the complex defeasance process, as nearly all fixed-rate conduit loans originated since 1998 prohibit a simple cash prepayment. Defeasance is a substitution of collateral in which a portfolio of government securities replaces the property as the collateral.

Redemption of principal and interest from the securities pays all remaining debt service, so the note technically is still in place but is repaid from the securities purchased.