Determinants in Commercial Real Estate Credit Spread Models—A Review

Ricarda Haffki

Journal of Real Estate Literature, 2022, vol. 30, issue 1-2, 1-22

Abstract: This article presents a systematic literature review of the determinants of commercial real estate loan credit spreads from 1989 to 2019. The motivation for this analysis is twofold. First, credit spread models receive little attention in commercial real estate, since research mainly focuses on the drivers of housing credit spreads. Second, data availability in the commercial real estate loan sector is still scarce and the data often mixed with other asset or loan types, such as commercial mortgage-backed securities and their related determinants. We synthesize the literature into four dimensions: property and loan characteristics, macroeconomic aspects, and counterparty characteristics. Using an open coding process, the literature is thoroughly analyzed in 10 subcategories. The results disclose that the main determinants are property and loan characteristics, which impact the reliability and riskiness of cash flow and interest and debt service. Since researchers focus primarily on credit risk determinants, counterparty characteristics have lately gained more attention as credit spread determinants, which deserves additional empirical research. Furthermore, we observe that endogeneity issues have become more prevalent, despite difficulties in finding the best treatment and different impacts.

Date: 2022
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DOI: 10.1080/09277544.2022.2144183

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