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Research Seminars & Workshops @ IRES


Professor Nancy Wallace
University of California, Berkeley

Energy Efficiency and Commercial-Mortgage Valuation


Date:

6 September 2011, Tuesday

Time:

4.00pm - 5.30pm

Venue:

RMI Executive Seminar Room
21 Heng Mui Keng Terrace, Level 4


Abstract

Energy efficiency is key to the future of the U.S. economy, and commercial buildings are among the largest users of energy. However, existing loan underwriting practices provide no incentive for building owners to make their buildings more energy efficient. In this paper, we develop a commercial-mortgage valuation, or underwriting, strategy that accounts for the energy risk of individual office buildings, this energy risk being a function of both the relative energy efficiency of the building and the characteristics of its location. Our method extends standard underwriting practices, which account for the expected dynamics of interest rates and office building prices over time, by including the expected dynamics of the electricity and gas prices as well as quantity dynamics appropriate to the location of the building. This allows lenders to explicitly take into account the effect of energy use and various alternative efficiency measures when underwriting commercial mortgages.

About The Speaker

Nancy Wallace is a Full Professor and the California Chair of Real Estate and Urban Economics in the Haas School of Business, the University of California, Berkeley. She is Chair of the Real Estate Group, Co-Chair of the Fisher Center for Real Estate and Urban Economics and a member of Haas Finance Faculty. She teaches asset-backed securitization, real estate investment analysis, real estate strategy, and real estate finance at Haas.

Her research focus includes residential house price dynamics, mortgage contract design and pricing, mortgage backed security pricing and hedging, lease contract design and pricing, and executive compensation. She has served as a visiting scholar at the New York Federal Reserve Bank, the San Francisco Federal Reserve Bank, the Université de Cergy Pointoise, Centre de Recherche THEMA (Théorie Economique, Modélisation, et Applications), and the Stockholm School of Economics. Professor Wallace is a past President of the American Real Estate and Urban Economics Association and a past member of the AREUEA Board of Directors. She is on the editorial board of the Journal of Computational Finance.

For full paper, download herehttp://www.rst.nus.edu.sg/research/images/pdf1.GIF


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