NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases a new research report entitled, “Defeasing in a World of 3% Treasuries and Slowing Prices.”
As commercial real estate (CRE) prices and interest rates go, so goes defeasance. While defeasance activity is expected to continue due to the rise in commercial real estate prices and a relatively low interest rate environment, it will likely be tempered as prices level off and rates continue to trend upward. It appears that both scenarios may already be playing out this year as price growth has slowed, while the ten-year U.S. treasury note broke through the 3% level in April.
In addition to property prices and interest rates, defeasance timing is also influenced by REMIC rules, which require that a mortgage release may not occur within two years from when a loan was securitized. Also influencing defeasance are its costs. When treasury rates are low, the cost to defease is higher.
In the report, we looked at defeasance activity relative to changes in real estate prices and interest rates over a twenty-year period from 1998-2018 (2009 excluded). Historical observations on defeasance trends were made, as well as our defeasance outlook for the rest of 2018 and into 2019.
Please feel free to reach out to us with any comments or questions on our study. To view the report, please click here.
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