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Extension Risk in Commercial Mortgages
Real Estate Finance
  • Charles C. Tu, California State University - Fullerton
  • Mark Eppli, Marquette University
Document Type
Format of Original
11 p.
Publication Date
Wolters Kluwer/Aspen Publishers

Historical data and Monte Carlo simulation is used to examine the likelihood of loan extension and potential losses associated with extension. It is found that extension probability is highly sensitive to property NOI growth, to NOI volatility, to the amortization schedule, and to the loan term. It is found that extension risk is largely unaffected by changing credit spreads, changing yield curve assumptions, and changing term default assumptions. It is found that changing the underwriting standards affects the probability of loan extension in a somewhat muted way. It is estimated that the loss during extension is approximately 2%-3% of the outstanding loan amount at maturity.


Accepted version. Real Estate Finance, Vol. 18, No. 4 (Winter 2002): 53-63. Publisher Link. © 2002 Aspen Publishers (Wolters Kluwer). Used with permission.

Mark Eppli was affiliated with George Washington University at the time of publication.

Citation Information
Charles C. Tu and Mark Eppli. "Extension Risk in Commercial Mortgages" Real Estate Finance (2002) ISSN: 0748-318X
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