There are many factors to consider when entering into a fixed-rate commercial real estate loan; what’s often forgotten is how to get out. Negotiating a solid exit strategy should be a critical aspect of all fixed-rate loan originations. Proactive borrowers who invest the time to plan an exit strategy upon origination may find that they can minimize penalties later.
When looking to extinguish fixed-rate debt, borrowers have two alternatives: yield maintenance or defeasance. Both methods allow the borrower to unencumber the underlying real estate asset and compensate for the lender’s reinvestment risk following prepayment. However, each method carries unique costs and implications, which can be punitive to a borrower.
Read more...What's Your Exit Strategy? | CCIM Institute