The Impact of Tenant Diversification on Spreads and Default Rates for Mortgages on Retail Properties

Brent William Ambrose, Michael Shafer, Yildiray Yildirim

Research output: Contribution to journalReview article

Abstract

We use an empirical model of commercial mortgage spreads to examine how tenant diversification impacts credit spreads for mortgages on retail properties. We find that mortgages on properties with a highly diversified tenant base have spreads that are up to 7.1 basis points higher than spreads on mortgages for single-tenant properties, but that mortgages on properties with moderate levels of tenant diversification have spreads that are up to 5.2 basis points lower than mortgages on single-tenant properties. The spread discount for mortgages on properties with moderate levels of tenant diversification disappears when the lease of the property’s largest tenant expires before the loan matures. Despite the spread discount that is given to properties with moderate levels of tenant diversification, we find that the likelihood with which a mortgage goes into default increases as tenant diversification increases.

Original languageEnglish (US)
JournalJournal of Real Estate Finance and Economics
Volume56
Issue number1
DOIs
StatePublished - Jan 1 2018

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diversification
loan
credit
Retail
Diversification
Mortgages
Default rate
rate
lease

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies

Cite this

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abstract = "We use an empirical model of commercial mortgage spreads to examine how tenant diversification impacts credit spreads for mortgages on retail properties. We find that mortgages on properties with a highly diversified tenant base have spreads that are up to 7.1 basis points higher than spreads on mortgages for single-tenant properties, but that mortgages on properties with moderate levels of tenant diversification have spreads that are up to 5.2 basis points lower than mortgages on single-tenant properties. The spread discount for mortgages on properties with moderate levels of tenant diversification disappears when the lease of the property’s largest tenant expires before the loan matures. Despite the spread discount that is given to properties with moderate levels of tenant diversification, we find that the likelihood with which a mortgage goes into default increases as tenant diversification increases.",
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The Impact of Tenant Diversification on Spreads and Default Rates for Mortgages on Retail Properties. / Ambrose, Brent William; Shafer, Michael; Yildirim, Yildiray.

In: Journal of Real Estate Finance and Economics, Vol. 56, No. 1, 01.01.2018.

Research output: Contribution to journalReview article

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