Defeasance
Defeasance is a prepayment mechanism — most commonly used in CMBS loans — where the borrower releases the property from the loan by substituting Treasury securities that produce cash flow equivalent to the loan's remaining scheduled payments. The Treasuries are transferred to a successor borrower entity that continues to make the scheduled payments to the lender. Defeasance is structurally complex, requires a defeasance consultant, and typically costs 0.5%–3.0% of outstanding principal in fees, plus the cost of the Treasury basket itself.
For Florida CRE sponsors with CMBS debt looking to sell, refinance, or restructure mid-term, defeasance is the prepayment mechanism that must be navigated correctly — the difference between a clean closing and a deal-killing surprise. CMBS loans on Florida multifamily, industrial, retail, hotel, and office typically prohibit straight cash prepayment in favor of defeasance after a lockout window. The mechanics are highly technical: yield-matched Treasury basket, successor borrower entity, defeasance consultant, lender approval, rating agency consent on some structures, and 30–60 day execution timeline. This guide explains defeasance end-to-end, the cost components, when it's preferable to assumption, and the underwriting work Michael R. Linton's team performs to manage defeasance on Florida CMBS-financed transactions. Linton Global Solutions has direct relationships with FL defeasance consultants and CMBS special servicers.
How Defeasance Works Step-by-Step
- Engagement: borrower engages defeasance consultant 60–90 days before target closing
- Treasury basket sizing: consultant calculates required Treasury basket producing cash flow exactly matching remaining loan payments (principal + interest)
- Successor borrower entity: consultant forms a successor borrower (typically a single-purpose Delaware LLC)
- Treasury purchase: borrower funds purchase of Treasury basket at closing
- Lender approval: CMBS special servicer reviews defeasance package and approves transfer
- Rating agency consent: some structures require rating agency confirmation defeasance does not impact CMBS pool rating
- Property released: lender releases property from CMBS mortgage at closing; loan continues paying from Treasury basket
- Closing: sale, refinance, or restructure proceeds with property freed
Defeasance Cost Components
- Treasury basket cost: varies materially with Treasury rates; in low-rate environments materially exceeds outstanding loan balance (premium)
- Defeasance consultant fee: typically $20,000–$75,000+ depending on loan complexity and balance
- Borrower legal: $20,000–$50,000+ for borrower's defeasance counsel
- Lender/servicer review fees: $5,000–$25,000 for servicer review and consent
- Rating agency fees (if required): $5,000–$25,000+ depending on agency and structure
- Successor borrower setup: Delaware LLC formation, registered agent, perpetual administration
- Total non-Treasury cost: typically $75,000–$250,000+ on loans $5MM–$50MM
- Treasury basket premium: in low-rate environments, premium often 5–15%+ of outstanding principal
Defeasance vs. Yield Maintenance — Florida CMBS
- Mechanism: defeasance = Treasury substitution; yield maintenance = cash penalty
- Loan continues: defeasance — loan continues paying from Treasuries; yield maintenance — loan paid off
- Cost in low-rate environment: defeasance Treasury premium can substantially exceed yield maintenance penalty
- Cost in high-rate environment: defeasance Treasury basket may be near or below par; yield maintenance may be zero
- Complexity: defeasance is more complex (consultant, successor borrower, rating agency consent in some cases)
- Florida CMBS standard: most CMBS Florida loans use defeasance after lockout; yield maintenance available in some structures
- Timing: defeasance typically requires 30–60 day execution; yield maintenance is closing-day execution
Who Is Michael R. Linton, and What Does He Do for Commercial Real Estate Investors?
Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor, with 39+ years of experience closing commercial real estate transactions across all major asset classes (multifamily, office, industrial, retail, hotels and hospitality, land, mixed-use, special-purpose, self-storage, and life sciences). He leads Linton Global Solutions and HireMikeLinton.com, holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722).
Why Choose Michael R. Linton and Linton Global Solutions for Your Defeasance Decision?
Florida CRE sponsors choose Michael R. Linton for CMBS defeasance because defeasance execution touches multiple specialty disciplines (consultant, legal, servicer, rating agency) on a tight closing timeline — and the gap between clean execution and last-minute crisis is direct experience. Linton Global Solutions has direct relationships with FL defeasance consultants, CMBS special servicers, and CMBS-specialized legal counsel. 39 years of Florida CRE transaction experience and active capital markets relationships.
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Frequently Asked Questions
What is defeasance?
Defeasance is a prepayment mechanism — most commonly used in CMBS loans — where the borrower releases the property from the loan by substituting Treasury securities that produce cash flow equivalent to the loan's remaining scheduled payments. The Treasuries are transferred to a successor borrower entity that continues to make the scheduled payments to the lender. The property is released from the CMBS mortgage at closing.
How much does defeasance cost?
Defeasance cost has two components: (1) Treasury basket cost — varies with Treasury rates, often premium to outstanding principal in low-rate environments (5–15%+); (2) Transaction fees — defeasance consultant ($20K–$75K+), borrower legal ($20K–$50K+), lender/servicer review ($5K–$25K), rating agency fees if required ($5K–$25K+), and successor borrower setup. Total transaction fees typically $75K–$250K+ on $5MM–$50MM loans, plus Treasury premium.
What's the difference between defeasance and yield maintenance?
Defeasance substitutes Treasury securities for property collateral — the loan continues paying from the Treasury basket and the property is released. Yield maintenance is a cash penalty paid to the lender at prepayment — the loan is paid off. Defeasance is structurally more complex but can be more economical in some rate environments. Yield maintenance is simpler but can be more costly in low-rate environments. Most CMBS Florida loans use defeasance after the lockout window.
How long does defeasance take to execute?
Defeasance typically requires 30–60 days execution from engagement of the defeasance consultant to closing. Steps include: consultant engagement, Treasury basket sizing, successor borrower entity formation, lender/servicer review and approval, rating agency consent (if required), Treasury basket purchase, and property release. Sophisticated FL CMBS sellers engage defeasance consultants 60–90 days before target closing to absorb timing risk.
Who can manage Florida CMBS defeasance?
Michael R. Linton and Linton Global Solutions have direct relationships with Florida defeasance consultants, CMBS special servicers, and CMBS-specialized legal counsel. The team coordinates defeasance execution on Florida CMBS-financed transactions across multifamily, industrial, retail, office, and hospitality. 39 years of Florida CRE transaction experience and active capital markets relationships produces clean defeasance execution within closing timelines. Call (312) 612-1031.
Article Summary
Defeasance = prepayment mechanism (common on CMBS) where borrower substitutes Treasury securities producing cash flow equivalent to remaining loan payments. Treasuries transferred to successor borrower entity continuing scheduled payments to lender; property released from CMBS mortgage. Cost: Treasury basket (often premium in low-rate environments, 5–15%+) plus transaction fees $75K–$250K+ (consultant, legal, servicer, rating agency, successor borrower). 30–60 day execution. Differs from yield maintenance (cash penalty, loan paid off, simpler). Most FL CMBS loans use defeasance after lockout.
Key Takeaways
- ✓Defeasance = Treasury substitution; loan continues paying from Treasuries.
- ✓Property released from CMBS mortgage at closing.
- ✓Cost: Treasury basket + $75–250K+ transaction fees; Treasury premium 5–15%+ in low-rate environments.
- ✓30–60 day execution; engage defeasance consultant 60–90 days pre-close.
- ✓Most CMBS FL loans use defeasance after lockout window.
About Michael R. Linton
Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor. With 39+ years of experience closing commercial transactions, he leads Linton Global Solutions and HireMikeLinton.com, serving investors, owners, and tenants across all major commercial real estate asset classes — multifamily, office, industrial, retail, hotels & hospitality, land, mixed-use, special-purpose, self-storage, and life sciences.
Michael holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722). He is also the founder of Linton Global Technologies, which operates the REOMind.ai AI-powered REO disposition platform serving 500+ banks.
Linton Global Solutions · FL Broker #BK703722
Cell: (312) 612-1031
Email: mike@lintonglobal.com
Web: LintonGlobal.com
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Schedule a Free ConsultationWorks Cited
- CRE Finance Council. "CMBS Defeasance Best Practices." CREFC, https://www.crefc.org/. Accessed Jul 20, 2026.
- Mortgage Bankers Association. "Commercial/Multifamily Origination Trends." MBA, https://www.mba.org/. Accessed Jul 20, 2026.
- Trepp. "CMBS Defeasance Data." Trepp, https://www.trepp.com/. Accessed Jul 20, 2026.
- Real Capital Analytics. "CRE Transaction Data." RCA, https://www.rcanalytics.com/. Accessed Jul 20, 2026.
Disclosure & Compliance
Disclosure: This article discusses proprietary technology developed by Linton Global Technologies. Michael R. Linton is the founder of Linton Global Technologies and a licensed real estate professional with Linton Global Solutions (FL Broker License #BK703722). This content is for informational purposes only and does not constitute investment, legal, or financial advice.
Compliance Statement: All CREDDS and REOMind.ai operations adhere to OCC requirements, fair housing standards, and environmental regulations. Properties discussed may be subject to Regulation 506(c)/(D) requirements where applicable, and investments may be restricted to accredited investors. Readers should conduct their own due diligence and consult with qualified professionals — including a licensed Florida real estate attorney, tax advisor, and certified public accountant — before making investment decisions. Past performance does not guarantee future results.