Yield maintenance is a prepayment penalty calculation that compensates the lender for the interest they would have earned if the loan had run to maturity, typically calculated using Treasury rates.
The yield maintenance formula: prepayment penalty equals the present value of the interest the lender would have received, discounted at prevailing Treasury rates. When Treasury rates are below the loan's coupon rate, yield maintenance penalties are substantial.
LA multifamily permanent loans often include yield maintenance provisions. Sellers with 2019–2022 loans at 3–4% rates face substantial yield maintenance costs in the current 4–5% Treasury environment. Estimate the penalty before listing.
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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