A prepayment penalty is the fee charged to pay off a commercial real estate loan before maturity. LA multifamily commercial loans typically include yield maintenance or defeasance prepayment structures.
Prepayment penalties compensate lenders for lost interest income when a loan pays off early. On fixed-rate commercial multifamily debt, penalties are often substantial — sometimes 5–15% of outstanding balance in early years of the loan.
For LA multifamily sellers with existing commercial debt, the prepayment penalty can be a meaningful line item at sale close. Some loans have step-down prepayment (penalty decreases over time); others have yield maintenance (compensates lender for full remaining interest). Understand your specific loan terms before committing to a sale timeline.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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