ASSESSING PROPERTY RISK IN AUSTRALIAN COMMERCIAL MORTGAGE-BACKED SECURITIES

This paper investigates how property risk in Australian Commercial Mortgage-Backed Securities (CMBS) issued between 2000 and 2005 can be assessed and reported in a more systematic and consistent approach to be easily understood by institutional investors. Our framework shows that assessing and reporting property risk in Australian CMBSs, which are primarily backed by direct property assets, under the headings of investment quality risk, covenant strength risk, and depreciation and obsolescence risk can easily be done. Rating agencies can adopt a more systematic and consistent approach towards reporting of assessed property risk in CMBS. Issuers and institutional investors can examine the perceived consistency and appropriateness of the rating assigned to a CMBS issue by providing inferences concerning property risk assessment.