Waterstone Capital Advisors' defeasance model can substantially increase the equity dollars our clients can retrieve from a refinance or sale transaction. Our transparent approach to the defeasance business ensures our clients' best interest is represented. We believe it is prudent to disclose to our clients the various revenues that can be produced inside the defeasance structure which will ultimately benefit the successor borrower.
As your independent consultant it is incumbent upon us to negotiate for your best economic position and disclose any future revenue opportunities available to the successor borrower. This approach ensures we avoid potential conflicts of interest with our clients. As experienced defeasance consultants we understand the pitfalls as well as the windfalls. We believe our clients should be also be made aware of this information. For example, a $50 million loan can produce float income of $150,000 or more, which belongs to the successor borrower. Another method of generating substantial revenue is for the successor borrower to pay the loan off early during the "open" period (can prepay without penalty) prior to maturity. Other defeasance providers do not disclose these opportunities to borrowers, thus creating a potential conflict of interest.
In many cases Waterstone Capital Advisors will agree to share float or early payoff income with the original borrower. This agreement is a result of our transparent approach to the defeasance business. As the defeasance securities mature each month they convert to cash and are held in an interest-bearing account with the securities custodian. Any interest that accumulates in the account belongs to the successor borrower, since it is not permitted to be applied toward the scheduled loan payments. Over time the amount of interest can grow substantially, especially at the time the large security at the end of the term matures to pay the balloon payment. The majority of this "float" income is generated from the last large security being held in the account until the final loan payment is due to the servicer. This income is what Waterstone Capital will agree to share with the original borrower.
Not all defeasance consultants are created equal. Some are even careful not to describe themselves as consultants altogether, which implies they do not wish to represent a borrowers' best economic interest. We believe being an independent company improves our clients' financial position, and does not present any conflicts of interest.
