Commercial Real Estate Stress Testing

CRE Stress Analytics©
CRE Stress Analytics is a recent addition to our suite of risk management tools.  It is robust software that quickly handles all commercial loan stress testing needs.  We work with staff to develop the loan extracts, import the data, and then train the model operators in its use. No more one loan at a time analysis, analyze the entire portfolio or sector at a time in a few quick key strokes. Deliver output to other formats or print and deliver to loan committee, ALCO, the CFO and CEO, the Board of Directors, or others as needed.  The easy to read graphics along with tabular support make CRE Stress Analytics the solution for you.
 A lender with concentrations in Commercial Real Estate (CRE) should perform portfolio-level stress tests or sensitivity analysis to quantify the impact of changing economic conditions on asset quality, earnings, and capital.

CRE Stress Analytics is a dynamic tool used to stress income producing commercial real estate portfolios to determine loan performance under stressed conditions and determine concentration exposures by virtually any yardstick the lender wishes to utilize.

The model uses dynamic variables to stress:
           Interest Rate
           Vacancy Rate
           Capitalization Rate
           Operating Expense
           Collateral Value

Individual loans, multiple loans, sectors or the entire portfolio can be stressed at once and
can be stratified by any of the categories loaded into the model. Segmenting the portfolio can be completed using each user’s own portfolio segments.

Two important factors in stress or sensitivity analysis are Debt Service Coverage (DSC) ratios and Loan to Value (LTV) ratios. The CRE Stress Analytics model creates stress ratings based on LTV and DSC ratios for past, current and future conditions.

Risk due to concentration of credit is addressed in CRE Stress Analytics. View concentrations for any variable: geographic, collateral, type, guarantor, etc.

Benefits of CRE Stress Analytics:
The CRE Stress Analytics is easy to learn and use.  Users set the level of detail for loan, guarantor, and collateral information.

Data
Automated Data Import from core processing system
Import from any source using delimited or spreadsheet files
Data always retained until modified
Subsequent updates change only information that has changed, everything else is held
Automatic Archive function
Quick and easy manual update of quarterly or annual borrower or loan information if necessary
Import everything at once or separate imports for loan data, collateral data, borrower/guarantor data
No outside data required

Security
Up to 10 levels of user authorizations plus Administrator level
Lock down within the SQL data base
Use internal security levels and access authorizations as another layer

Stress Testing
Stress each loan with actual data, not generic area wide assumptions
Use actual loan performance data
One button stressing in a matter of seconds
Isolate loans by sector, area or region, loan type, lender, construction/non-construction, and many others
Discover concentration issues including borrower/guarantor and exposure to capital
Track historical stress migrations
See potential Loss Given Default under stressed conditions
Set stress parameters globally by sector or individually
Stress test loans any time you want with immediate results, the software is on your PC or network
Stress portfolios or individual loans
Set output for automatic credit alerts
Virtually unlimited loan count capacity in the SQL data base


Output
Multiple reports available for single loans, loan sectors, or the entire portfolio
Full export capability into spreadsheet or other format
Reports available by lender, branch, sector, size, location, and many, many more areas
Easy to read presentation in graphs, charts and itemized detail when needed
Print stress results by loan, by sector, or by the entire portfolio.
Understand risk to capital
Larger portfolios can arrive at Probability of Default
Print or view overall Loss Given Default, if any
View everything on the screen or print

Compliance
Designed to comply with all current issued regulatory guidance
Continual updates included
Outputs designed
Ability to create new reports

Variables Stressed
Capitalization rate
Interest rate
Income
Expenses
NOI
Absorptions rates when applicable
Construction time overruns
Occupancy rates

Output
Current and stressed DSC
Current and stressed LTV
Current and stressed Loss Given Default if any
Estimate of collateral value (primary and secondary) at current and stressed levels
Stress Rating at current and stressed levels
Foreclosure liquidation expenses


Spreadsheets are gone.  No more wasted time and upkeep.  No more manual data entry.

Stress Ratings for loans are completed automatically through user defined parameters.

Export records to other systems.

Concentration Risk is easily monitored and measured against capital and overall exposure

Satisfy the regulatory requirements for stress and sensitivity analysis.

Empirical evidence is provided by CRE Stress Analytics© of potential risks in the portfolio allowing monitoring of these potential problem loans and mitigation of the risk in advance of loan performance issues.
Real data is used to stress your loans. Not generalized “peer data” or “national averages”, but your financial institution’s real data.

Report output is available in standardized or customized reporting formats.

View results for the current position, under moderate or severe stress and compared to original underwriting position.

User defined portfolio segmentation.

Analyze for concentration levels

Low cost solution that is fed from standard core system extracts.

Easy extract importation to load the data allow quick updates and ongoing monitoring.

Risk Stress a loan during underwriting and continual for the life of the loan.