Defeasance is generally the most common type of CMBS prepayment penalty. Unlike percentage-based prepayment penalties, a borrower needs to replace their CMBS loan’s collateral with new securities, typically U.S. Treasury bonds in order to replace CMBS investors’ income.

CMBS loan origination occurs when a lender processes a potential borrowers’ loan application and determines whether they will be approved for a loan. This generally involves credit checks, background checks, a financial analysis of the subject property, and the reviewing of third-party reports, like the property appraisal and a phase 1 environmental inspection (ESA).