Yield Maintenance, Defeasance, and More:

“The #1 killer to yields & returns that we see is misunderstood and/or ill-timed prepayment penalties.”

Scott Williams, Managing Director of Aline Capital, recently spoke on the Passive Wealth Strategies for Busy Professionals podcast. Scott provides investors with simple technical definitions and great insight on the two prepayment penalty types of yield maintenance and defeasance.  These can significantly impact achieving your desired return because of the potential cash outflow. As Managing Director of commercial real estate debt and equity, Scott has extensive experience with advising clients who are great investors but don’t always understand the ins & outs of the lending world.

Key takeaways from the podcast include:

  • BUZZ WORDS. Yield Maintenance and Defeasance are not curse words, rather buzz words.  Neither can be waived because lenders need prepayment protection on non-recourse permanent mortgages (commercial & multifamily) as they are also investors who must quantify their yield.
  • DOUBLE EDGED SWORD. There is no perfect loan.  It is a balancing act to obtain the loan aspects you need most.  Maximum leverage, amortization, & fixed-rate periods come with yield maintenance and defeasance, which are near impossible penalty amounts to predict at the outset (as future treasuries are unknown).
  • TAKE YOUR CHIPS OFF THE TABLE. Non-recourse loans can help you with your global banking relationship by freeing up recourse obligations.
  • BALLOON PAYMENTS. In order to help with refinance risk, you can utilize resets and fixed-to-floating periods.


Trust a broker who can provide real advisory service to you.  Be sure to check out the Passive Wealth Strategies for Busy Professionals podcast at this link!

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