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CRE Finance World, Summer 2013

This analytic framework produces six hypothetical scenarios as depicted below: Exhibit 3 Hypothetical scenarios Footnote: 1 – Alternate pass through rates were not modeled, as cap rate changes in these scenarios are reflective of Property & Portolio Research’s Base Case forecast model. The level of risk-free rate change is minimal and the deviation of cap rates at the alternate pass through rates will not make a material difference relative to PPR’s base case cap rate forecast. Results The potential outcomes under the six scenarios described above are illustrated in the following graphs below. The graphs indicate performance by vintage as projected by PPR’s Compass model.14 Exhibit 4 The comparable size of loan balances that face a maturity gap15 Source: PPR, Trepp • Of the factors modeled, conservative underwriting at balloon is the primary differentiator of the magnitude of the refinance gaps. CRE Finance World Summer 2013 20 Exhibit 5 The probability of default percentage at maturity Source: PPR, Trepp • Conservative underwriting trumps rising interest rates, which in turn trump reactionary cap rates in terms of relative impact on probability of default. Pre-peak vintages16 have elevated risk. Exhibit 6 The expected loss due to maturity default Source: PPR, Trepp • Reactionary cap rates that reduce collateral valuation have a significant impact on expected loss at balloon. CMBS Refinance Risk: Vintage Analysis Across Multiple Economic Scenarios


CRE Finance World, Summer 2013
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