INCANS Risk Insight Publication: Quantifying the Risk of Tenant Failure


The growing popularity of commercial real estate as an investment is hardly surprising given the prevailing central bank policy of a zero-interest rate environment. Under such conditions government and corporate bond yields no longer deliver the required returns so investors have been forced to look elsewhere for a stable and recurring revenue stream.  

In this brave new world where income is king, real estate is increasingly viewed as a good bond proxy by many in the broader financial community. However, real estate valuers, brokers, investors and lenders have no standard quantifiable measures of tenant default risk and this presents a barrier to entry for many investors who don’t feel they can accurately underwrite direct real estate investments or loans.

This is not a new problem for the sector. Indeed, the inability of investors to accurately assess tenant income default in the collateralised mortgage-backed security markets (CMBS) in 2007/8 played a central role in precipitating the Great Financial Crisis. However, despite the near-death experience felt by many in the real estate investment markets at that time very little has changed.

Read the full insight here: Quantifying the Risk of Tenant Failure