CRE Stress Testing

CRE risk management through debt service analysis, debt service coverage, and loan-to-value sensitivity analysis based on past, present, and projected future conditions provides a clear picture of the earnings potential and the risks assumed in a proposed loan.

FISCAL provides a flexible method for CRE stress testing. Work with a single property – or combine entities for portfolio sensitivity – to determine the performance under various what-if scenarios, including variable interest rates, capitalization, and vacancy rates. Set your own rates for testing parameters, and track the changes in the results. The flexibility of FISCAL’s system and the clarity of the reports brings new understanding to the risks inherent in commercial real estate lending.

The need for institutions to characterize and quantify the impact of economic changes is increased when considering both commercial real estate loans and the use of commercial real estate as collateral for other types of loans. Sensitivity to changes can be risk alerts signifying that the borrower might have difficulty in servicing the proposed debt. The most critical factors for testing are those that increase the potential for loss. Factors such as occupancy rates directly impact cash flow and the underlying value of the asset.

On an institutional level, assessing commercial real estate sensitivity will help determine the overall impact, either positive or negative, on capital and earning should a projected scenario become a reality. Best-case and worst-case scenarios provide a framework within which decisions can be made. FISCAL provides a user-friendly framework for commercial risk management analysis, including CRE stress testing.