Résumé

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.

Einzelheiten

Aktionen