Investor sentiment and the prepayment hazard in CMBS loans

Das, Prashant (Ecole hôtelière de Lausanne, HES-SO // University of Applied Sciences Western Switzerland) ; Freybote, Julia (Tibor and Sheila Hollo School of Real Estate, College of Business Florida International University)

Rising property values trigger an increase in prepayments of commercial mortgages as borrowers refinance to take out equity or sell their asset. However, property values are driven by fundamentals and irrational investor sentiment. We investigate sentiment as an explanation for prepayments of loans underlying CMBS. We employ Cox proportional hazard models to analyze a sample of 10,728 multifamily securitized loans for the period of 2001 to 2015. We find that, controlling for property market fundamentals, interest rates and prepayment penalties, irrational sentiment is able to explain the exercise of the prepayment option by borrowers. In particular, the more irrationally optimistic (pessimistic) investors are in the market, the higher (lower) is the prepayment propensity of commercial mortgage borrowers. The effect of irrational sentiment on prepayment hazard is robust to different models accounting for, amongst others, loan and deal characteristics.


Keywords:
Conference Type:
full paper
Faculty:
Economie et Services
School:
EHL
Institute:
EHL - Département recherche
Subject(s):
Economie/gestion
Publisher:
Bonita Springs, Florida, USA, 10-14 April 2018
Date:
Bonita Springs, Florida, USA
10-14 April 2018
2018
Pagination:
37 p.
Published in:
Proceedings of the 34th American Real Estate Society (ARES) Annual Meeting
Appears in Collection:

Note: The status of this file is: restricted


 Record created 2018-05-14, last modified 2019-06-11

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