Monday, September 10, 2007 Issue
Upfront Residual Payments
By Erika Morphy
 

Los Angeles—Providing upfront payments on a defeased CMBS loan’s residual value is the
latest development in this specialized space. Unlike earlier innovations, this offering appears to
be driven by newer providers eager to make a dent in the market.
 

A newcomer to the defeasance industry, Reliable Defeasance has completed more than 50
transactions valued at nearly $1 billion. Executives at the firm attribute its growth not only to
aggressive marketing but also to its so-called monetization product, which essentially pays
clients up front for the expected residual value of the securities at maturity.
 

“This has been a very potent lure for driving business,” Eric Ridel, business development
manager for Reliable Defeasance says. “Reliable offers the borrower the option to take a
monetized version of the residual value at the closing of the defeasance to offset some of the
costs associated with the defeasance or the future amount when the term of the original note
expires.”
 

REITs, which are prevented from sharing in the float on a later date because of regulatory
issues, are major beneficiaries of the product, adds Stewart Wolmark, a principal of Reliable
Defeasance. “It has also been beneficial to publicly traded companies for compliance reasons.”
 

Reliable Defeasance is not the only defeasance provider offering upfront payments of the
residual value, but it is among a small group. Not long ago, even sharing this money--
essentially, the float associated with the securities purchased as part of the defeasance--with
clients was considered a leading edge practice in the industry.