Please use this identifier to cite or link to this item: https://doi.org/10.1007/s11146-012-9374-z
Title: Commercial Mortgage Workout Strategy and Conditional Default Probability: Evidence from Special Serviced CMBS Loans
Authors: Chen, J.
Deng, Y. 
Keywords: CMBS loan
Default risk
Hazard model
Logit model
Special service
Workout strategy
Issue Date: 2013
Citation: Chen, J., Deng, Y. (2013). Commercial Mortgage Workout Strategy and Conditional Default Probability: Evidence from Special Serviced CMBS Loans. Journal of Real Estate Finance and Economics 46 (4) : 609-632. ScholarBank@NUS Repository. https://doi.org/10.1007/s11146-012-9374-z
Abstract: This study recognizes that commercial mortgage default is not a one-step process and examines a previously under explored aspect in the whole default process, that is the stage between the initial delinquency and default. We distinguish the servicers' behavior from the borrowers' behavior. A multinomial logit model is applied to analyze the servicers' choice of workout options and a proportional hazard model is applied to analyze the borrower's default decision-making process under time-varying conditions. We find that cash flow condition is the most significant factor in the servicers' decision making process. We also find that borrowers make default decisions based upon both the equity position in the mortgage and the cash flow condition in the space market. Key real estate space market variables, such as market-level vacancy rates, also provide useful information in explaining commercial mortgage defaults. We find that special service seems to be successful in reducing the probability that a troubled loan will default. Finally, sensitivity analysis shows nontrivial economic significance of the impact of explanatory variables, real estate market variables in particular have the most significant impact on the pricing of special-serviced loans. © 2012 Springer Science+Business Media, LLC.
Source Title: Journal of Real Estate Finance and Economics
URI: http://scholarbank.nus.edu.sg/handle/10635/113981
ISSN: 08955638
DOI: 10.1007/s11146-012-9374-z
Appears in Collections:Staff Publications

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