Credit Markets

This section explores the role of debt in real estate capital structures, with a focus on the pricing, spreads, and risk considerations It is organized into three sections:

1. Link to Papers

Highlights two foundational studies (“High-Yield Debt: It’s Good Until It’s Not” and “High-Yield Lending’s Characteristics as a Function of Asset-Level Volatility”) that provide theoretical and empirical perspectives on the behavior of high-yield credit across varying asset conditions.

2. Cost of Debt & Various Spreads 

This section is organized into three subsections that analyze how debt costs and spreads vary across leverage ratios and market conditions:

  1. Cost of Debt at Various Leverage Ratios
    Assesses how borrowing costs change with different loan-to-value (LTV) levels, providing insight into the relationship between leverage and credit pricing.

  2. Analysis of Debt Spreads
    Tracks the behavior of credit spreads over time, highlighting differences between high- and low-LTV loans relative to the risk-free rate.

  3. Initial Thoughts on Mezzanine Financing
    Introduces preliminary considerations around mezzanine debt, focusing on its role in the capital stack and implications for return and risk.

3. High-Yield Debt Market

This section is organized into three subsections that explore the characteristics and risks of high-yield lending:

  1. High-Yield Debt Considerations
    Reviews key features of the high-yield debt market, including investor appetite, pricing dynamics, and borrower profiles.

  2. Tranche-Level Risk Considerations
    Examines how risk is distributed across senior and subordinated tranches, focusing on repayment priority, expected losses, and sensitivity to market shocks.

  3. Asset Characteristics in High-Yield Debt
    Analyzes how underlying asset-level factors such as volatility and cash flow stability influence the performance and risk profile of high-yield loans.