Credit risk analysis of commercial real estate

Obtaining financing is an inevitable process for most expanding business horizons and to the same, and real estate companies are no exception. Real Estate Investment is capital intensive and real estate companies require funding from external sources to facilitate business expansion. When we research on commercial real estate sector, compared to other market structures it is procyclical. Lately, it has been observed the real estate industry and Real Estate Investment Trusts (REITs) have collectively generated enormous capital inflows which have made the sector an absolute fit for monitoring investors’ financial stability. The most pivotal element of any lender is to assess the investor’s ability to meet its financial obligations which also indicates the borrower’s creditworthiness. The objective of my report is to determine the level of the credit risk of any individual/firm having portfolios in secured-based lending (shares pledged as collateral), unsecured lending or commercial real estate. Post the financial crisis, investment in real estate has gained momentum, which has also given rise to REITs which is a different investment avenue for budding investors having the ability to take risks. Considering the digital revolution and business expansion measures, banks have adopted stringent risk assessment procedures for risk reduction of borrowers.