Secondary loan sale platform DebtX recently unveiled a new portfolio valuation product, dubbed DXMark, which uses empirical trade information rather than a mark-to-market process to evaluate commercial real estate loans and portfolios. While currently limited to CMBS, DebtX CEO Kingsley Greenland confirmed a desire to expand into other assets, once trade volume builds to a critical mass. "Everything we develop, begins with CMBS and then expands into other areas," he said.
Based on past trades over its system DebtX extracted 52 data points, such as property type and loan-to-value (LTV) ratios, DXMark assigns a value to each, in relation to the others. Greenland uses the example of a hypothetical hotel property in Kalamazoo, Mich. that could be in a typical portfolio. "The value assessment of the property type, a hotel, changes with different variables, such as location," he explained. Using regression analysis on past trades, we built an algorithm to determine how important each data point, property type and location being two of them, to calculate a discount rate for each loan." From there, the decision to buy, sell or hold, is in the hands of the lender or portfolio manager. "I like to use the example of the share price of any given stock. If I value a stock at $35 per share, and the market values it differently, higher or lower, that will dictate my decision," he added.
Billed as a tool for "identifying hidden value and hidden risk for overall balance-sheet management," the product allows a lender to compare its portfolio to those of the broader market, based on trades that have occurred over the DebtX platform. "A company's exposure to concentration risk would likely cause the portfolio's market value to differ from the institution's internal valuation and present an opportunity to mitigate risk via the secondary market," DebtX said in a release.