Investor Sentiment and Prepayment Hazard: The Case of Multifamily MBS Loans

Abstract

Rising property prices are one explanation for higher prepayments of commercial mortgages as borrowers refinance to take out equity or sell their assets. However, prices may be driven not only by fundamentals but also investor irrationality. We investigate the informative value of investor sentiment for prepayments of loans underlying CMBS. We employ Cox proportional hazard models to analyze a sample of 10,728 multifamily securitized loans for the period of 2001 to 2015. We find that, controlling for fundamentals, interest rates and loan characteristics, irrational investor sentiment is able to explain the exercise of the prepayment option by fixed and floating rate borrowers in times of increased property prices. The effect of irrational sentiment on prepayment hazard is robust to different sentiment measures as well as originator, geographic and deal characteristics. Our findings suggest that irrational investor sentiment is a source of information for lenders and CMBS investors interested in predicting prepayments.

What explains differing holding periods across hotel investments? A hazard rate framework

“…Earlier studies have applied survival functions to firm takeovers (Malmendier, Opp and Saidi, 2016), CEO turnover (Jenter and Kanaan, 2015), equity stake changes (Bradley, Pantzalis and Yuan, 2016) and loan survival (Chen and Deng, 2013;Ambrose et al, 2016;Liu and Sing, 2017;Das and Freybote, 2018), among others. For the survival analysis, we posit the sale of a hotel as a "hazard".…”