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  • Lender Research Report Released (11/06)
  • Boxwood and Scotsman Guide have published a new research report on small-balance commercial mortgage lenders. ... read More The small-balance loan market is in a transitional phase represented by growth and diversification according to the new research report, Market in Transition: 2006 Small-Balance Commercial Mortgage Lenders Survey. The second of two research reports produced through a partnership between Boxwood Means and Scotsman Guide, the study cites that lenders have formed dedicated small-loan programs and are investing in new products and services in order to offset the market's fragmentation and perceived increases in competition in this $130 billion marketplace. Some of the highlights of the report include:

    • Channel Competition is Heavy. Lenders rely on mortgage brokers and intermediaries for the vast majority of their originations.
    • Market Fragmentation is a Major Impediment. Lenders view the market's fragmentation as the No.1 challenge to the growth and health of the marketplace.
    • Alternative Underwriting Threatens the Status Quo. Though conventional, cash-flow underwriting practices prevail, a substantial percentage of lenders report using light and "no doc" approaches.
    • Securitization Makes In-roads. Securitization is a mainstay for a plurality of lenders. Many more lenders cite an interest in this exit strategy.

    Additional background material and options for purchasing the report are available on the Scotsman Guide web site, http://www.scotsmanguide.com. This lender report complements the separate research study released earlier this month by Boxwood Means and Scotsman Guide involving the small-balance mortgage broker channel.

  • Fuchs to Present at Small-Balance Mortgage Forum (11/06)
  • Randy Fuchs will kick off the upcoming Mortgage Brokers' Forum of Small-Balance Commercial Real Estate Lending ... read More with the General Address before an audience of prominent mortgage originators and lenders. Sponsored by Hartford One Group, the Forum will be conducted at The Millennium Resort McCormick Ranch in Scottsdale, Arizona on December 3 and 4.

    Randy will discuss the latest trends and forecasts in the small-balance market and how mortgage originators are faring in the robust, but increasingly segmented and competitive $134 billion marketplace. Market conditions in both the larger commercial mortgage sector and the residential mortgage industry have conspired of late to focus increased attention on the relatively unstructured small-balance arena characterized by loans under $5 million in value.

  • Mortgage Broker Research Report Released (11/06)
  • Boxwood and Scotsman Guide have published primary research on broker intermediaries in the small-balance market. ... read More The report, "Navigating the Wholesale Channel: 2006 Small-Balance Commercial Mortgage Brokers Survey" sheds new light on the competitive wholesale channel and the brokers that originate the lions share of loans in the space.

    Small-balance market research specialists, Boxwood Means, Inc., partnered with Scotsman Guide in this ground-breaking research report that is based on a survey of 260 commercial and residential brokers conducted this past summer. The report uncovers for the first time how mortgage brokers are faring in this $134 billion lending space, the performance of residential brokers to date in migrating over to commercial deals and the important features and products that mortgage brokers seek from lenders.

    Some general highlights of the report include:

    • Residential brokers are successfully crossing over into the small-balance commercial arena as a result of the downdraft in the residential housing market. The wholesale channel is now composed of a larger and much more diverse population of loan brokers, with differing levels of sophistication, as well as needs and wants from lenders.
    • Brokers have difficulty finding lenders that satisfy their customer’s financing needs . The challenging attributes of the small commercial property inventory are a major reason that brokers work with so many lenders.
    • Optimism reigns in the wholesale channel , and residential and commercial brokers report that their deal volume has increased this year versus last. But brokers acknowledge that competition in the space is increasing.

    Additional background material and options for purchasing the report are available on the Scotsman Guide web site. A complementary and separate research report on commercial lenders of small-balance mortgages is scheduled to be available to the public later this month.

  • Boxwood Teams with Scotsman Guide on Survey (8/06)
  • Boxwood Means has partnered with Scotsman Guide on a joint research survey of the small-balance commercial mortgage market. ... read More Scotsman Guide is the leading resource for mortgage originators, connecting mortgage brokers with wholesale lenders.

    This original survey, to be conducted over the summer months of 2006, targets commercial mortgage lenders and brokers. The research topics include sourcing of loans, loan products, cycle times, securitization and more. The survey is available online through mid-August at Scotsmanguide.com.

    Survey findings will be incorporated into a research report that will be prepared by Boxwood Means and made available to the public jointly by Boxwood and Scotsman Guide in the fall.

  • Office Markets Highlighted in Latest CBC Webcast (6/06)
  • Spiking rents in some office metros highlighted real estate property performance in the first quarter according to Randy Fuchs's analysis ... read More during June's Coldwelll Banker Commercial webcast. Key takeaways from the session entitled "Office Markets Break from the Pack" included:

    Office Markets Break Out - The headline story of the First Quarter, 2006 is the out-performance of the office markets. Office demand was nearly 15 million square feet in the quarter according to Reis, on par with the volume last quarter but significantly above levels of this period last year. Coupled with a scarcity of new office product, office vacancies are tumbling. At 14.0%, the national vacancy rate was down 53 basis points (bps) sequentially and is now 200 bps below the rate of 1Q 2005 and the lowest since the tech fall-out in 2001. In fact, a number of the tech-related metro areas are making up for lost time: e.g., the vacancy rate in San Jose nose-dived by 210 bps in the first quarter alone (to 16.4%). The contracting vacancies have, in turn, empowered landlords to raise rents. Effective rents, up 3.4% for all of 2005, jumped 2.2% nationally in the first quarter alone, paced by the outsized increase of 3.3% in the West region. Nationally, rents are up 5% year over year, with 7% gains in the West since this period last year and 6% in the Northeast. This office rental performance is tops among all major property types and augurs a momentum shift, or sector rotation out of the Retail sector to Office where the market fundamentals are perhaps the strongest. The announcement of the private buyout of the office REIT Trizec by Blackstone and Brookfield Properties, at a nearly 20% premium to net asset value, is only the latest confirmation of the improving performance of, and bets being placed on, this property type.

    Retail Loses Luster - The sector rotation seemingly comes at the expense of neighborhood and community shopping centers. The fact is that retail has had an amazing bull run over the last four years, as other sectors languished. Now, though retail market fundamentals are still healthy, it appears that the momentum is slowing and, from an investment perspective, the sector presents less of an upside compared with other property types. According to RCA, sales volume for malls and strip centers, for example, were $7.3 billion in the quarter, down 44% sequentially and 19% below the volume of a year ago. This is the weakest performance among the major property types. Against this backdrop, demand for retail space slowed to 2.6 million square feet in the first quarter according to data from Reis, down substantially from the 7 million last quarter and below net absorption levels of a year ago. However, with only modest development pressure vacancies remain stable at 6.7% nationally. California metro areas, benefiting from robust economic and demographic conditions, as well as constrained supplies of land for new shopping centers, account for 7 of the 8 tightest markets in the country, led by Orange County and Oakland-East Bay at 2.5%.

    Residential Housing Dips Further - Evidence is mounting that sales of single-family homes and condos are losing steam. Existing U.S. home sales fell 2% in April from the previous month, and the rate of growth is 5.6% below the pace in April 2005. Moreover, there were a record 3.4 million homes for sale in April, which translates into a six-month supply of homes at the existing sales pace - the highest level since the beginning of 1998. New home sales aren't faring any better. In fact, April's inventory of new homes for sale hit a record 550,000, over a 25% increase year over year. Meanwhile, condo sales are tailing off, too. Inventories have expanded to 7.1 month's supply, the highest level in at least five years. And perhaps the most telling statistic is that the median condo sale price fell 0.2% in April; though this is a modest change, it incorporates the first year-over-year decline in condo prices in 11 years.

    Apartments Seize the Moment - The condo conversion trend, which has removed thousands of rental units from many markets around the country, has conspired with rising mortgage rates of late to assist the apartment market. In some metros, in fact, sizable portions of market-rate rental inventory have been erased: in Florida for instance, Fort Lauderdale has lost 16% of its rental inventory, Palm Beach-13% and Orlando-10%. With a national vacancy rate of 5.8%, down almost a full percentage point over 12 months, landlords find a hospitable climate for raising rents. Effective rents were up 1% in first quarter, and landlord concessions are declining with sizable reductions in renter benefits in the stronger markets of the West and Northeast. The top markets for rent growth are associated with either heavy condo conversion activity or supply-constrained markets: in the first period, rents were up 2.8% in Fort Lauderdale, 2.4% in Palm Beach and over 2% in Miami and Tampa. Also, rents in San Jose and San Francisco were up roughly 2% each. The top 10 markets for rent growth over the last year are either in California, Florida or New York.

    For a pdf version of the “Office Markets Break from the Pack” presentation, click here. To hear a replay of the audio and visual presentation, visit the Coldwell Banker Commercial web site and click on the Viewpoint webcast link on the home page.

  • Boxwood Lands Major Appraisal Validation Contract (5/06)
  • Boxwood Means signed a multi-year agreement with a top national bank to provide testing of residential valuation models. ... read More Boxwood will design and implement statistical tests of reliability for several automated valuation models (AVMs) that the bank utilizes in various residential lending programs. Boxwood harnesses a massive database of millions of residential sales transactions to assemble appropriate statistical samples for most jurisdictions across the U.S. Boxwood's appraisal validation services support bank initiatives to ensure that AVM use is grounded in safe and sound practices that also meet the requirements of bank regulatory authorities.
  • Small-Balance Loan Volume Jumps 11% (5/06)
  • The small-balance loan market rose to $118 Billion in 2005, up 11% over production levels in the previous year as organic growth ... read More and healthy market conditions accelerated demand for financing. In its latest research update on this specialized loan market of small investor and owner-occupied properties under $5 Million in value, Boxwood Means further reports that loan volume in the fourth quarter of 2005 increased 8% over the same period a year ago to $31.3 billion. This loan space, which has yet to attract the level of capital inflows associated with the larger and more institutionally-oriented mortgage markets, is growing steadily as national and regional lenders target this market segment that encompasses millions of small commercial and multi-family properties nationwide. For additional research findings, see Boxwood's latest TrendLines briefing.
  • Favorable Outlook Painted for 2006 in CBC Webcast ( 3/06 )
  • The property markets closed out a solid recovery in 2005 and, according to Randy Fuch's analysis during the latest Coldwell Banker Commercial webcast, ... read More further improvements lie ahead. Important highlights and trends of Randy's session titled "Two Thumbs Up: Recovery in the Property Markets" include:

    Chill in Residential Housing Bodes Well for Apartments - The apartment sector is finding its footing as the single-family and condo markets cool down. Sales of existing (older) as well as newly constructed single-family home are declining, which is ramping up inventories of unsold homes. In January, for instance, the number of new homes for sale rose to a record, representing a 5.2 months supply, the largest backlog of homes since November, 1996. Similarly, while condo conversions are soaring – almost 200,000 during 2005 according to RCA - existing condo sales are dropping: down 11% in January and almost 8% below levels of a year ago. In this wake, apartment demand is rising and vacancies, at an aggregate 5.7% in fourth quarter, are narrowing. Rents, in turn, were up 0.7% nationally in the last period and 3% year-over-year according to Reis, with a particularly sharp annual increase of 4.2% for the West region. Boxwood forecasts 100,000 units of net absorption for the U.S. in 2006, which will lower vacancies by 40 basis points.

    Office and Industrial Markets Bounce Back - With nine consecutive quarters of positive absorption, the office sector's recovery appears to be locked into place. Demand totaled 14.5 million sq. ft. in the fourth quarter per Reis, and the year's total absorption of 55 million sq. ft. was over a 50% increase over the total volume in 2004. Office construction levels are immaterial, and the 29 million sq. ft. put in place in 2005 was the second lowest output since 1996. The slow recovery, coupled with inflated costs of construction materials and labor have made it much harder for developers to justify breaking ground, especially in light of current rents. Vacancies nose-dived as a result, down 41 basis points in the quarter to 14.6% nationally, down 170 basis points for the year. With demand outpacing supply, rents were rejuvenated, up 3.4% for the year – the first time they were positive on an annual basis since 2000. Boxwood forecasts that demand will continue in '06, and the national vacancy rate will decline more than 100 basis points to 13.4% by end of year.

    The industrial sector posted similar gains during last year. As businesses increased capital expenditures and manufacturing turned up, warehouse demand rose to 57 million sq. ft. in fourth quarter, and the almost 200 million sq. ft. of absorption for the year was the highest level achieved in at least 11 years according to data from Torto Wheaton Research. Though supply increased, vacancies continued to contract, down 30 basis points in fourth quarter and 130 basis points overall, to 10.0% overall. Industrial rents began to percolate as a result, up 3.3% for the quarter and a robust 5.2% for the year. Boxwood anticipates that rents will be up 2.5% in 2006, as vacancies decline 40 basis points to 9.5%.

    Retail Remains in Fashion - Despite the naysayers who claimed that consumers would flinch and sharply reduce visits to the mall, consumer expenditures stayed aloft and the retail sector pulled off another year of outpeformance. Demand for shopping center space totaled 7 million sq. ft. in fourth quarter and 24 million for the year, the highest total since 2000. As demand and supply remained in equilibrium, national vacancies barely budged ending at 6.5%. Some areas of the country, especially California markets in the West, are booming, and regional vacancies at 4.2% are at historic lows. It comes as no surprise then that average rents for the nation jumped 1% in fourth quarter with a 3.4% annual rise - the largest increase since 1998 according to data from Reis. As a sign of the sector's continued stability and growth, 41 markets had positive rent increases in the last period, inlcuding 20 had price increases of 1% or more. Boxwood forecasts 3% increases in rents in 2006, and further tightening of vacancies to 6.2% by year end.

    Investment Sales Hit the Roof - RCA reported a record $270 billion of properties traded hands in 2005, up almost $90 billion from 2004 representing a 50% increase. Over 12,000 properties were sold, a 39% increase overall, including jumps of 60% in the sale of apartment and industrial properties. Cap rates dropped in aggregate by 66 basis points - with industrial the individual winner with cap rate compression exceeding 100 basis points. As prices have soared in major markets, some secondary and tertiary markets gained favor as investors sought better risk-adjusted returns. With the tremendous run-up in property prices over the last couple of years, the outlook for investment real estate may not quite so rosy in 2006. One spillover of this investment fervor has been the privatization of REITs, which totaled a record $28 Billion in 2005. This trend, which continues into 2006, reflects a form of arbitrage between valuations recorded in the private versus the public REIT market.

    For a pdf version of the "Two Thumbs Up" presentation, click here . To hear a replay of the audio and visual presentation, visit the Coldwell Banker Commercial web site and click on the Viewpoint webcast link on the home page.

  • Fuchs Outlines Small Loan Market at MBA CREF ( 2/06 )
  • Randy Fuchs opened the "Small Loans Are Big" panel session at the annual Mortgage Bankers Association Commercial Real Estate Finance ... read More earlier this month with a presentation on the firm's latest research on this important mortgage segment. Some highlights of the speech included:

    Organic Growth Prevails - Originations in the small balance commercial loan space, at roughly $100 Billion through third quarter 2005, are driven by internal or organic demands of small property investors and business owners. This situation is in stark contrast with the larger commercial mortgage market where excess capital inflows have inflated the loan volumes, with domestic issuance of CMBS a primary case in point.

    How the Cookie Crumbles - What are the prevalent loan sizes? Forty percent of loan originations in this space are occurring in the $1m -$3m range. Another 32% fall into the $3m - $5m bracket and the remaining 28% of loans are under $1m.

    Fragmentation Reigns - With the top four banks accounting for only 11% of total originations nationwide, this space is the poster child for industry fragmentation. This state of affairs leads to widespread market inefficiencies that have promoted variations in loan terms, pricing and credit availability.

    Ripe for Change - Fuchs suggested that the history of the CMBS market may serve as a window onto the future of the small balance space. There are new market entrants attempting to seize opportunities here, with other trends including moves towards industry consolidation, increased Wall Street and capital markets involvement, and increased use of technology.


  • Fuchs Underlines Property Market Comeback in CBC Webcast (11/05)
  • The property markets have entered a new phase in the real estate cycle according to Randy Fuchs, who outlined his views in the latest Coldwell Banker Commercial webcast. ... read More In his presentation titled "Momentum Shift: Property Markets in Higher Gear", Randy catalogued important third quarter highlights and trends that included:

    • The Office sector is the comeback story of 2005. There have now been eight consecutive quarters of positive absorption based on data from Reis, and the year-to-date sum of 39 million square feet in the top 50 metropolitan areas exceeds the total demand for all of last year. Against this backdrop, rent growth was positive for the third consecutive quarter and has increased 2.2% year over year, the first such positive, annual growth in over four years.
    • Apartments are no longer the whipping boy of commercial real estate. Demand for rentals skyrocketed in the third quarter as the option for single-family housing purchases turned less attractive in the face of higher interest rates, and Hurricane Katrina triggered active leasing in Southern markets. This period's absorption of 36,000 units exceeded the total demand in all of 2004 and led to a sharp decline in the national vacancy rate, to 5.9% according to Reis. As a result, rents rose a robust 1.4% in the third quarter, triple the increase of the prior quarter, with year over year rent growth at a respectable 2.7%. Boxwood forecasts that apartment rental demand in 2006 will exceed 150,000 units.
    • The defiant Retail sector stays the course. Despite mounting risks to consumers' spending power, Retail property fundamentals remain solid. Rents continued their upward momentum, rising 1% nationally in the third quarter, led by the 1.4% surge in the West region. Nearly half of the 47 top Retail metros had rent growth of 1% or more in the period.
    • The investment sales market makes history. Through October, almost $190 billion of properties traded hands according to RCA. Year-to-date totals approach the total volume of sales all last year, which was a record. In September alone, the $30 billion in sales was way above any previous high. Apartment sales are up 90% year over year (fueled by condo conversions) and Industrial sales have risen by 83%. It's unclear whether the capital flows into real estate can be sustained at such high levels, as interest rates begin to creep upwards.

    For a pdf version of the "Momentum Shift" presentation, click here. To hear a replay of the audio and visual presentation, visit the Coldwell Banker Commercial web site and click on the Webcast link on the home page.

  • Taylor Speaks at IMN High-Net-Worth Conference (9/05)
  • Risk control in the current investrment market was high on the agenda at IMN High-Net-Worth Real Estate Investing conference ... read More in New York City. While many panelists at the conference viewed abandonment of real estate investments as the best option, Michaell Taylor, Ph.D. and a principal at Boxwood, offered up an alternative.

    Taylor told conference participants that Boxwood's research has shown conclusively that substantial risk reduction can be obtained by diversifying investments across a variety of real estate investment vehicles such as REITs, direct investments, preferred REITs and CMBS. As demonstrated at the conference, these investment alternatives offer very different performance profiles and are subject to very different risks. Over the past several years, REIT performance has been decoupled from performance of underlying real estate. This disconnect, in turn, yields both risk and potential rewards in portfolio construction.

    For instance, Taylor explained that efficient frontiers for portfolios allocating across sub-classes of real estate reduce risk by several hundred basis points compared to investments in any single sub-class. Backtest results confirmed this conclusion, and he emphasized the need to recalculate allocations often in light of changing market conditions. Taylor also addressed the future of interest rates and their influence on real estate investments.

  • Fuchs Assesses Real Estate Market Conditions in CBC Webcast (8/05)
  • Randy Fuchs offered his views and analysis of commercial real estate markets in his public webcast sponsored by Coldwell Banker Commercial. Several key takeaways ... read More of his presentation, Terra Firma: A Foothold for Commercial Real Estate, included the following observations:

    • Sustained U.S. economic growth, employment and continued low interest rates have incubated a turn-around in the property markets, which improved at an accelerated pace during the second quarter.
    • Tenant demand in the Office, Industrial and Retail sectors are all at pre-recession highs. Vacancy rates are ontracting in most of the major U.S. metros for these property types.
    • Suggestions are premature that the retail bull is tiring. Absorption in the second quarter, at 8 million square feet according to Reis, was the second highest in the last four years; and year-over-year rent growth is robust at 3.1%, with almost all major metropolitan areas posting solid rent gains. Boxwood’s Coldwell Banker Commercial forecast is for national retail vacancies to reach 5.8% by year end; if attained, that will be the lowest level in at least 25 years.
    • Property investors continue to bank on these current improving and future market fundamentals. Through June, sales volume for the four major property types was $112 billion according to RCA; 50% more than the first six months of 2004, and 60% of the total volume for that entire year.
    • The Apartment sector remains challenged by single-family home ownership that is at record high levels, as well as competition from the burgeoning condo sector. The silver lining is that condo conversions are taking apartments out of the rental stock; coupled with low construction activity, these two forces are stabilizing the sector and have allowed the national vacancy rate to decline 22 basis points as reported by Reis to 6.5%, within earshot of the 5.8% of three years ago.
    • The national condo craze offers evidence of cooling. While NAR reported that 90,000 condo sales were registered in June - up 11% from this time last year - the months' supply of condos (a key metric of market equilibrium) jumped to 5.3, the highest level in several years.

  • Boxwood Delivers Unique Mortgage Market Analysis Reports (4/05)
  • Boxwood has developed and launched a series of break-through analytical reports on the small loan market for commercial and multifamily mortgages under $5 million in value. ... read More With originations totaling $100 billion a year, this is a massive but poorly understood marketplace. Not any longer. Boxwood's Mortgage Market Analysis reports, compiled from an exceptional database of 3.5 million small commercial/multi-family properties, lifts the veil on this robust market with valuable intelligence on origination and sales activity by property type and different geographies, market shares of individual lenders, top markets for growth and more. Lenders and market analysts can use these reports for market research, marketing and business development, benchmarking performance against competitors, market planning and expansion, and mergers and acquisitions.
  • Cross-Asset Real Estate Portfolios Outperform (3/05)
  • Previous studies have proven that real estate enhances overall performance in typical stock and bond portfolios, by increasing returns while lowering overall volatility or risk. ... read More To date, investors have achieved real estate diversification primarily through a single real estate asset class such as REIT investments or private real estate equity holdings.

    Investing in various types of real estate assets offer various risks, returns and betas. For instance, Common REIT shares returned 13.4% with 12.7% volatility over ten years, while Private Real Estate produced 10.3% returns but only 1.7% volatility (unadjusted NAREIT estimates). Correlations between such sub-classes are low, thereby offering opportunities to combine them into a portfolio that increases the diversification benefits for investors.

    Boxwood was commissioned to examine quantitatively the risks and advantages of establishing a cross-real estate asset fund compared to other options for obtaining real estate exposure. Several findings of Boxwood's study, which encompassed Common and Preferred REITs, CMBS and Private Real Estate Equity, include:

    • Overall Stock and Bond Portfolios Perform Better with Real Estate Exposure. Boxwood's study confirmed results of earlier academic and financial research that portfolio risk can be substantially reduced with real estate investments. In today's financial environment, investors with typical investment portfolios can reduce risk by 200 basis points through additions of real estate. Alternatively, investors can boost overall portfolio returns an annualized 1.3% without assuming any more risk.
    • Real Estate Investment Portfolios that Diversify across Sub-classes Perform Even Better. Boxwood's results showed that in today's environment, careful construction of Common REIT, Preferred REIT, CMBS, and Private Real Estate Equity can reduce volatility by over 500 basis points compared to portfolios with 100% REIT allocations-the most common real estate investment for retail investors. More notable is the clear superiority of all portfolios that contain private investment allocations. Portfolios with private real estate uniformly hit the return targets with substantially lower risk. It became evident that Common REIT shares are harnessed to increase return while risk is controlled by private real estate equity.
    • Multi-Asset Real Estate Portfolios Outperform Single-Asset Portfolios over a 10-Year Period. Based on the study's earlier findings on the merits of diversifying within real estate asset classes, Boxwood illustrated the advantages flowing to a multi-real estate asset allocation approach with a backtest over ten years ending in late 2004. The “Modeled Multi-Asset Portfolio”, which quantitatively determines the composition and changes in portfolio allocations periodically over time, convincingly outperformed various single-asset portfolios. For instance, the Modeled Portfolio returned 12.9% annually, beating the return of the private real estate portfolio by 200 basis points with equivalent volatility (3.6%). Also, the Modeled Portfolio handily outperformed Preferred REIT investments and, while the Portfolio's returns were modestly less than that of a 100% Common REIT portfolio, the former had only about 1/4 of the REIT portfolio's volatility.

  • Taylor Speaks at MBA CREF Conference (2/05)
  • At the Mortgage Bankers Association's annual Commercial Real Estate Finance conference in February, Michaell Taylor, a Boxwood principal, discussed recent ... read More advances in real estate risk models, and their utilization in various business applications. He argued that simulation and high-resolution modeling, combined with the inherent predictability of commercial real estate income streams, offer opportunities to increase efficiency in credit pricing, portfolio management, strategic planning and equity investment. To illustrate, Michaell discussed general results from a Boxwood client report that clearly demonstrate that up to 60% of portfolio-level risk can be eliminated simply through geographic diversification of an underlying commercial mortgage portfolio. Of particular interest to the assembled audience was the use of these models to manage risk and, more importantly, strategically share risk through various market and insurance mechanisms.


  • Portfolio Analytics Quantify Benefits of Geographical Dispersion (12/04)
  • In a recent examination of commercial mortgage portfolios, Boxwood quantified the impact of the geographical dispersion of loans on diversification benefits and ... read More economic capital. Lenders traditionally rate the credit quality of individual loans and then establish capital reserves for the stand-alone credit risk. What is more elusive is the quantification of portfolio risk. Portfolio risk not only reflects the risk or volatility of each single loan, but also the behavior of the loans in aggregate. By quantifying geographical diversification, discounts on capital set-asides can be realized.

    Boxwood's study involved the simulation of thousands of prototypical apartment mortgage portfolios with various geographical distributions and concentrations. We then analyzed the geographical diversification effects employing forward-looking simulation models that carefully identify and preserve default covariances of the loan assets. The results indicate that substantial diversification benefits can be achieved through national and regional distribution of loans. Quantification of these diversification benefits, in turn, suggests that economic capital can be reduced by roughly 40% for geographically diversified portfolios. Moreover, optimized market selection can further increase the "diversification rebate" to nearly 60% with loan exposures in only a modest number of metropolitan areas. The study underscores the potential of portfolio analytics in shaping lender policies regarding portfolio strategy, risk management and cross-regional lending relationships.

  • New Valuation Tool Is Launched (9/04)
  • Boxwood's joint venture with First American has produced its initial product, a valuation tool for small business loans and small commercial mortgages. ... read More In the fiercely competitive small business lending segment, banks and non-bank lenders alike need to price loans aggressively and make commitments swiftly in order to maintain and grow their customer base.

    The collateral valuation product of First American Commercial Real Estate Services, or Indexed Value Report ("IVR"), helps expedite the loan origination and review process. The IVR, available for most metropolitan areas and counties around the U.S., produces a market value that is based on an indexing model that has been fully redeveloped by Boxwood.

    The new model studies the current and historical relationship between publicly-recorded sales prices of properties to their assessed values at the time of sale, taking into account the value of the property, timing of sale, and the property type. The IVR is presently utilized by more than a dozen commercial lenders.

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