1. Yale School of Management Real Estate Class 3: Debt, Mortgages, CMBS

2. Yale School of Management Review Angus Cartwright –Elements of the pro-forma –Foundations of the recommendation –Scenario analysis Dynamics of Real Estate Markets –Capture more than scenarios –Integrated macro-economic models

3. Yale School of Management Mortgage Debt Mortgage as a pledge –Promissory note admits debt and makes borrower liable. –Mortgage pledges property as security. –Default on note gives an option to lender. Why is a mortgage a useful tool? –What is security? –What makes a property good security? Debt effects –Maintenance motivations

4. Yale School of Management Default Breach of contract –Failure to pay –Failure to comply with contract Foreclosure –When and why is this attractive? –Reasons for breach: –Macro vs. micro reasons –Liquidity

5. Yale School of Management CMBS Pooling of commercial mortgages Senior, subordinated and residual tranches Baloon payment/refinancing risk

6. Yale School of Management No Default periodCash inflow seniorsubordin ated residual 11.483.22 21.483.22 31.483.22 41.483.22 5116.483.301.22

7. Yale School of Management Default periodCash inflow seniorsubordin ated residual 11.483.22 21.483.22 31.483.22 41.483.22 596.483.30-0-

8. Yale School of Management Chen and Deng Focus on Workout Long process from delinquency to foreclosure. 144 CMBS