Commercial Mortgage Default and Refinancing Risk: A Primer

Abstract

In the period 1993–2006, commercial mortgages and commercial mortgage-backed securities provided highly competitive returns, on a risk-adjusted basis, relative to other investments in the stock and bond universe. The severe 2007–2009 financial market meltdown, induced by the downturn in the housing bubble, provides a stiff challenge to the continuation of previously strong results. Corcoran examines historical performance of commercial mortgage defaults and seeks to draw inferences about defaults in the unusual 2007–2009 U.S. economic downturn. The article serves as a primer for investors considering relative value in the sector at a bottom-of-the-cycle moment, when relative value is typically high.