Assessing Commercial Real Estate Market Credit
Cycles and CMBS Investment Implications

Abstract

U.S. commercial real estate (CRE) prices have enjoyed impressive appreciation after the global financial crisis. The important question to ask is how long this party will last and where we are in the credit cycle. This article highlights the unique characteristics of this credit cycle that distinguish it from previous ones, followed by an assessment of U.S. CRE valuations through comparisons with global peers, U.S. residential housing prices, and the historical risk premium. The author then calibrates the stages of credit cycles in which each CRE sector is situated through the lens of six-factor metrics. The author concludes with implications for commercial mortgage-backed security investors and recommends targeted investment approaches for investors.