Mastering the metropolis through research and thought leadership.
Working Papers

The Premature Pricing of Commercial Real Estate Distress

Working paper #633
Neil Barve, Aaron Bryson, Tee Yong Chew and Wei Jin

This paper discusses the premature pricing-in of commercial real estate distress, particularly up the capital structure. Spreads on higher-rated CMBS classes have reflected loss expectations comparable with or beyond those seen in the commercial real estate recession in the late 1980s/early 1990s. However, the authors find that underlying commercial real estate fundamentals remain firm and comparisons with subprime are overstated. They conclude that despite downside risks to recent vintage collateral from a weakening economy, it is too early to price in such a level of base-case losses. The prolonged period of CMBS spread compression came to a dramatic end in 2007, as spreads widened and the credit curve steepened. However, underlying commercial real estate fundamentals largely were steady, and delinquencies stayed in check, with some signs of weakness in recent-vintage collateral, especially in multifamily. The gradual decline in property values is expected to continue given the repricing of debt and the effect of decelerating economic growth on rent projections.

Download full paper · 1MB PDF


In This Section
Explore Topics

1010 Affordable Housing Amazon Amenitization Architecture Artificial Intelligence Asia Australia automation Autonomous Vehicles bonds Borrowing Constraints Brexit California Canada Capital Business China Co-Working Environment coastal markets cold storage Colombia Commercial Brokerage Commercial Real Estate commissions Congestion consumer bias covid-19 CRE credit card market Credit Default Swaps Credit Insurance Credit Risk Transfers Culture Data Analytics data centers Data Collection Technology Debt Market Demand Demographics Density Development Discrete Choice disruption Diversity drones e-Commerce Economic Corridors economic policy economics education election studies Equity Funds Equity Market Ethnic Factors Europe Fannie Mae financial asset management Foreclosures Foreign Policy France Freddie Mac general equilibrium Global global economy Global Financial Crisis Globalization great depression Great Recession healthy buildings Hedonic hospitality Housing & Residential housing boom Housing Disease housing prices Housing Supply Identity Income Inequality India inflation Inter-generational mobility interest rates Investing jobs labor market Lagging Regions land use regulation Language life sciences Macroeconomics malls Market Pricing megacities Microeconomics Migration Minimum Payments Mixed-Use Mobility moral hazard mortgage insurance mortgage market Mortgage Rates Mortgages Multi-family Nation Building Non-Traditional Mortgages Office Market office sector pension funds Placed Based Policies Political Risk Price Discovery Private Equity Business public health public policy Public Schools real estate brokerage Real Estate Investment Real Estate Investment Trusts Recession Rental Retail Retirement reverse mortgages Risk Adjustment risk management risk-shifting robotics single family housing Slums Sorting South America Spatial Regions spillover effect stimulus package Sub-Prime Mortgages Sustainability Technology telecommunications trade transportation unemployment United States Urban Urbanization Warehouse welfare work from home

arrow_drop_up