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

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  • Brent Ambrose

    (The Pennsylvania State University)

  • Michael Shafer

    (Providence College)

  • Yildiray Yildirim

    (Baruch College)

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.

Suggested Citation

  • Brent Ambrose & Michael Shafer & Yildiray Yildirim, 2018. "The Impact of Tenant Diversification on Spreads and Default Rates for Mortgages on Retail Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 56(1), pages 1-32, January.
    • Handle: RePEc:kap:jrefec:v:56:y:2018:i:1:d:10.1007_s11146-016-9579-7
    DOI: 10.1007/s11146-016-9579-7
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    Cited by:

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    2. Christopoulos, Andreas D. & Jarrow, Robert A., 2018. "CMBS market efficiency: The crisis and the recovery," Journal of Financial Stability, Elsevier, vol. 36(C), pages 159-186.
    3. Eszter Baranyai & Ádám Banai, 2022. "Heat projections and mortgage characteristics: evidence from the USA," Climatic Change, Springer, vol. 175(3), pages 1-20, December.
    4. Ryan G. Chacon, 2023. "Tenant Concentration in REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 66(3), pages 636-679, April.

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    More about this item

    Keywords

    Commercial mortgages; Mortgage spreads; Mortgage default rates; Tenant diversification;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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