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Driving Factors in Pricing European CMBS: Bond, Mortgage and Real Estate Characteristics

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  • Gianluca Marcato

    (School of Real Estate & Planning, University of Reading)

  • Giovanni Alberto Tira

    (School of Real Estate & Planning, University of Reading)

Abstract

This work represents a first attempt to price European commercial mortgage backed securities (CMBS) and our results are consistent with research carried out in the US market. More specifically this research intends to study the significance of bond, mortgage and property-related variables in the pricing of European CMBS, along with macro-economic and financial factors used as control variables. Particularly we define some variables to describe the underlying property portfolio and the behavior of the real estate market to test their significance in explaining CMBS spreads. Multiple linear regression analysis using a databank of A Tranches issued between 1997 and 2007 indicates a strong relationship with bond-related factors, followed by real estate and mortgage market conditions. As floater coupon tranches tend to be riskier and exhibit higher spreads, we also estimate a model using this sub-set of data only and results hold reinforcing our findings. Finally, we estimate our model for both tranches A and B and discuss main differences.

Suggested Citation

  • Gianluca Marcato & Giovanni Alberto Tira, 2009. "Driving Factors in Pricing European CMBS: Bond, Mortgage and Real Estate Characteristics," Real Estate & Planning Working Papers rep-wp2009-04, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:repxwp:rep-wp2009-04
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    File URL: http://www.henley.reading.ac.uk/rep/fulltxt/0409.pdf
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    References listed on IDEAS

    as
    1. Clark L. Maxam & Jeffrey Fisher, 2001. "Pricing commercial mortgage‐backed securities," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 19(6), pages 498-518, December.
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    3. Brian A. Maris & William Segal, 2002. "Analysis of Yield Spreads on Commercial Mortgage-Backed Securities," Journal of Real Estate Research, American Real Estate Society, vol. 23(3), pages 235-252.
    4. Ambrose, Brent W & Sanders, Anthony B, 2003. "Commercial Mortgage-Backed Securities: Prepayment and Default," The Journal of Real Estate Finance and Economics, Springer, vol. 26(2-3), pages 179-196, March-May.
    5. James Kau & Donald Keenan & Yildiray Yildirim, 2009. "Estimating Default Probabilities Implicit in Commercial Mortgage Backed Securities (CMBS)," The Journal of Real Estate Finance and Economics, Springer, vol. 39(2), pages 107-117, August.
    6. Kau, James B & Keenan, Donald C. & Muller III, Walter J. & Epperson, James F., 1990. "Pricing Commercial Mortgages and Their Mortgage-Backed Securities," The Journal of Real Estate Finance and Economics, Springer, vol. 3(4), pages 333-356, December.
    7. Ciochetti, Brian A. & Deng, Yongheng & Lee, Gail & Shilling, James D. & Yao, Rui, 2003. "A Proportional Hazards Model of Commercial Mortgage Default with Originator Bias," The Journal of Real Estate Finance and Economics, Springer, vol. 27(1), pages 5-23, July.
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    10. Titman, Sheridan D & Torous, Walter N, 1989. " Valuing Commercial Mortgages: An Empirical Investigation of the Contingent-Claims Approach to Pricing Risky Debt," Journal of Finance, American Finance Association, vol. 44(2), pages 345-373, June.
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    JEL classification:

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

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