Commercial Mortgage Debt Overhang and Intent to Default: Insights from Daniel Broxterman, Mariya Letdin, Chongyu Wang, and Tingyu Zhou Using CompStak Data

At CompStak, we’re excited to see how our data supports important research in commercial real estate, especially as it relates to market challenges such as mortgage debt.

Commercial Mortgage Debt Overhang and Intent to Default” by Daniel Broxterman, Mariya Letdin, Chongyu Wang, and Tingyu Zhou delves into the phenomenon of commercial mortgage debt overhang and its potential impact on default intentions in the commercial real estate market.

The full abstract of the paper can be found below, offering a glimpse into the depth of research that leverages the precision and accuracy of CompStak data to assess market changes.

“This paper investigates whether investment in leasing activity by property owners is associated with default risk for CMBS loans on office buildings. We conjecture that borrowers, who possess superior knowledge of their properties, make investment decisions that reflect their private valuations. When a borrower perceives a property’s value to be lower than the outstanding loan balance, further investment primarily benefits the lender, creating a classic debt overhang problem Myers (1977). This suggests that leasing effort and tenant improvement expenditures, relative to a property’s competitive set, may serve as indicators of intention to default. Consistent with this hypothesis, we find that lower leasing effort by borrowers is associated with a higher likelihood of loan delinquency.”

Download the full paper here.