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September 25, 2014

Portrait of a "Ruthless Defaulter"

Rental Housing
Commercial Real Estate Borrower Defaulter

Why do commercial real estate borrowers default on a loan?

Our research, "Default Ruthlessness: Examining Borrower Default Behavior," reveals that the decision to default is complex and highlights some of the factors that drive default behavior.

We know that some borrowers with underwater properties and deteriorating property cash flows continue to pay their mortgage and some do not. Our research showed that commercial real estate borrowers are more likely to default when:

  1. Economic conditions are weak
  2. Loans have shorter terms
  3. Property is in a volatile market

However, if a borrower has access to capital and overall liquidity, then they are less likely to default and will support the property until the market improves.

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