Chapter 50. Commercial Real Estate Loans and Securities

REBECCA J. MANNING

Vice President, Harbor Asset Management

DOUGLAS J. LUCAS

Executive Director and Head of CDO Research, UBS

LAURIE S. GOODMAN, PhD

Co-head of Global Fixed Income Research Manager of U.S. Securitized Products Research, UBS

FRANK J. FABOZZI PhD, CFA, CPA

Professor in the Practice of Finance, Yale School of Management

Abstract: Commercial real estate is a cyclical industry, subject to local, regional, and national economic conditions. It is also a capital intensive business, requiring funding for initial development as well ongoing maintenance and improvements. Consequently, commercial real estate finance has traditionally been dominated by banks, life insurance companies and private investors with the long-term investment horizons and the access to capital required by the industry. However, commercial real estate finance has evolved into a public market with more liquidity and transparency, which has attracted a broader range of investors. In addition, commercial real estate-related investments have become more complex, bringing new opportunities and new risks to investors.

Keywords: commercial real estate loans, whole loans, A-notes, B-notes, mezzanine loans, commercial mortgage-backed securities (CMBS), REIT securities, loan origination, master servicer, special servicer, call protection mechanisms, prepayment risk, extension risk, interest shortfalls

A commercial real estate loan is secured by a commercial real estate ...

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