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Exit Fees and Their Impact upon the Effective Interest Costs of Commercial Real Estate Loans

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  • Robert Aalberts
  • Richard Hoyt
  • Percy Poon

Abstract

Exit fees are now becoming a common and integral part of commercial mortgage lending practices. This paper discusses the current legal environment of exit fees with an emphasis on the precedent-setting Delta Rault 100 Veterans LLC v. GMAC Commercial Mortgage Corp. case. Several models are developed to explore the effective interest cost of a short-term mortgage with an exit fee. Results show that the existence of an exit fee in a short-term loan can have the effect of dramatically increasing the effective interest cost of the loan. The models show that a prudent borrower must thoroughly investigate the impact of an exit fee on the effective interest cost of a bridge/mezzanine loan and understand how an exit fee affects the permanent refinancing decision.

Suggested Citation

  • Robert Aalberts & Richard Hoyt & Percy Poon, 2008. "Exit Fees and Their Impact upon the Effective Interest Costs of Commercial Real Estate Loans," Journal of Real Estate Practice and Education, Taylor & Francis Journals, vol. 11(1), pages 57-74, January.
    • Handle: RePEc:taf:rjrpxx:v:11:y:2008:i:1:p:57-74
    DOI: 10.1080/10835547.2008.12091635
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