Capitalization of Above Market Financing
Posted: 28 Jul 1999
Date Written: September 1994
Prices and characteristics were collected for two similar, adjacent buildings. One building, a co-op, has a master mortgage with a prepayment lock-out, while the other building, a condo, has no master mortgage. Prices for units in the co-op are found to fluctuate with the value of the prepayment lock-out, which is calculated as a function of the prevailing level of interest rates, interest rate volatility, and the time remaining on the lock-out provision. However, the value of the lock-out seems to be overcapitalized in the prices of the co-op units. This paper represents the views and opinions of the author only, and not those of the US GAO, or any other entity.
JEL Classification: G21
Suggested Citation: Suggested Citation