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| Capitalization of Above Market Financing:
Condos and Co-ops Author: Austin Kelly Start Page: 163 Abstract: 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. They provide a natural experiment to
isolate the capitalization of financing terms. The research provides the clearest
demonstration to date of the impact of financing terms on sales price. The value of the
prepayment lock-out is estimated, using a stochastic simulation, as a function of the
level of interest rates, rate of volatility, and time remaining on the lock-out provision.
Prices for co-op units are found to fluctuate with the value of the prepayment lock-out.
The value of the lock-out is overcapitalized in the price of co-op units. Co-op status
reduces the value of apartments by about 9%. |
