CMBS: North American CMBS Property Evaluation Methodology

Introduction

This document describes KBRA’s methodology for evaluating commercial real estate (CRE) property cash flow and value for assets collateralizing North American CRE transactions on a variety of commercial mortgage-backed securities (CMBS) including, but not limited to, single asset single borrower (SASB), large loan, conduit fusion, agency, and CRE collateralized loan obligation (CRE CLO) transactions. This methodology may also be utilized when analyzing other types of transactions secured by CRE assets. KBRA’s approach to determining estimated sustainable net cash flow (KNCF) and KBRA Value (as discussed in the KNCF and KBRA Value section) for the most common property types is highlighted in this publication. The approach for analyzing other property types follows similar principles.

The income capitalization valuation method is the most common approach used to determine KBRA Value, whereby KNCF is divided by a long term, asset-specific KBRA capitalization rate. The…