Fall 2006, Vol 31, No 2

Abstract: One key to investment success is knowing when to exit. This paper examines the interaction of loan underwriting policies for timing indicators and the lender-borrower difference of opinion about the future and what it says about the upper limit of that market. In typical real estate acquisitions, lenders influence transactions through the loan terms they offer. Indeed, buyer interest in a property at any given price depends largely on loan terms. When the loan terms change, the buyer’s interest changes, which can lead to a price change. Authors develop a bubble theory based on connections among loan-to-value ratio, debt coverage ratio, interest and capitalization rate; and explore how capitalization rate trend data can help lenders and borrowers make smart decisions.