Defeasance among loans backing U.S. commercial mortgage-backed securities (CMBS) jumped from $1.3 billion in 2009 to $2.8 billion in 2010, according to new data released by Moody's Investors Service.The pickup in defeasance reflects increased liquidity for commercial real estate assets, says Moody's.
In 2010, the 10 largest defeased loans totaled $1.2 billion, or 42% of total defeasance volume for the year. The two largest defeased loans were originally secured by office buildings located in New York and Washington, D.C. By aggregate loan balance, multifamily represented the largest share of defeased loans, at 39%. The multifamily sector benefits both from improved fundamentals and additional financing options due to the activities of the government-sponsored enterprises, says Moody's.
‘Defeasance remains an important factor in CMBS credit, because it dramatically reduces the risk of potential loss of principal and interest associated with real estate assets by substituting Aaa-rated U.S. government securities for the real estate collateral,’ says Sandra Ruffin, a Moody's vice president and senior credit officer. ‘However, the amount of defeasance, and hence the benefit to CMBS credit, varies significantly by deal and vintage.’
The Moody's special report, ‘U.S. CMBS: Defeasance Activity Picks Up As Commercial Real Estate Liquidity Improves,’ is available online.
