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

Robert Aalberts, Richard Hoyt and Percy Poon

Journal of Real Estate Practice and Education, 2008, vol. 11, issue 1, 57-74

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.

Date: 2008
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DOI: 10.1080/10835547.2008.12091635

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