Internal credit rating framework for real asset investment


Real asset investment, which is assumed to be worthier than traditional assets in regards to exposure to income volatility, has become central to investment portfolios in financial institutions. However, the features of illiquidity and uniqueness involved in an individual real asset deal require private investors to review the full dimensions associated with the transaction structure. Banks and global credit rating agencies assess the quality of products by relying heavily on qualitative research executed by human insights and experiences. Such an approach ensures the comprehensiveness of the review process but it requires excessive resources in time and money. This study presents an internal rating system that instantly screens features of a deal proposal and provides a rating compatible with the global rating standard. The result shows that the outcomes created by this model are mostly clustered from BBB to BB. These findings match the average ratings for real assets, as determined by global rating agencies, which strengthens the practicality of the proposed model.

First published online 10 October 2019

Keyword : credit rating, alternative investment, real estate, infrastructure, Bank for International Settlements (BIS)

How to Cite
Bae, D. S. (2020). Internal credit rating framework for real asset investment. International Journal of Strategic Property Management, 24(1), 38-50.
Published in Issue
Jan 1, 2020
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.


Allison, R., & Tufts, S. (2015). Infrastructure investments: an attractive option to help deliver a prosperous and sustainable economy. Retrieved from$FILE/EY-infrastructure-investments.pdf

Bae, D. S., & Damnjanovic, I. (2018). Credit risk assessment and monitoring of TIF bonds. The Journal of Structured Finance, 23(4), 57-68.

Bank for International Settlements. (2001). Working paper on the internal ratings-based approach to specialised lending exposures. Retrieved from

Bank for International Settlements. (2017). High-level summary of Basel III reforms. Retrieved from

Bank of England. (2019). Internal Ratings Based (IRB) approaches. Retrieved from

Barkham, R., & Luo, W. (2018). Global investment volume rises, driven by robust U.S. market. Retrieved from

Bonsall, S., Koharki, K., & Neamitu, M. (2015). The effectiveness of credit rating agency monitoring: evidence from asset securitization. The Accounting Review, 90(5), 1779-1810.

Bonsall, S. B., Koharki, K., & Neamtiu, M. (2017). When do differences in credit rating methodologies matter? Evidence from high information uncertainty borrowers. The Accounting Review, 92(4), 53-79.

CBRE. (2017). The global market leader in commercial real estate services. Retrieved from 4NDM4fFR5cGU9MQ==&t=1

Choi, S. C. (2018). Expedited infrastructure investment by asset management company. Business Post Korea. Retrieved from

Fracassi, C., Petry, S., & Tate, G. (2013). Are credit ratings subjective? The role of credit analysts in determining ratings. Retrieved from

Garmaise, M. J., & Moskowitz, T. J. (2003). Confronting information asymmetries: evidence from real estate markets. The Review of Financial Studies, 17(2), 405-437.

Griffin, J. M., & Tang, D. Y. (2012). Did subjectivity play a role in CDO credit ratings? The Journal of Finance, 67(4), 1293-1328.

He, Y., Wang, J., & Wei, K. C. J. (2011). Do bond rating changes affect the information asymmetry of stock trading? Journal of Empirical Finance, 18(1), 103-116.

Heitmann, K., & Davison, A. (2018). Moody᾽s: default and recovery rates for project finance bank loans remain stable. Retrieved from

Heitmann, K., Hawken, N., & Davison, A. (2017). Default and recovery rates for project finance bank loans, 1983-2015. Retrieved from

Hull, J. C., Predescu, M., & White, A. (2005). Bond prices, default probabilities and risk premiums. SSRN.

Korean Ministry of Land Infrastructure and Transport. (2016). Overseas infrastructure development support policy. Retrieved from

KPMG. (2019). Emerging trends in infrastructure 2019. Retrieved from

Longstaff, F. A., Mithal, S., & Eric, N. (2005). Corporate Yield spreads: default risk or liquidity? New evidnece from the credit default swap market. The Journal of Finance, 60(5), 2213-2253.

M&G Institutional. (2017). The opportunity in European commercial real estate debt. Retrieved from

McKinsey & Company. (2017). Basel “IV”: what᾽s next for banks? Retrieved from

Medina, J. (2018). Moody᾽s update its methodology for rating generic project finance issuers. Retrieved from

Medina, J., & Marty, D. (2018). Rating methodology: generic project finance. Retrieved from

Meers, W., & Humphrey, T. (2017). Macquarie infrastructure debt investment solutions: an introduction to infrastructure debt. Retrieved from

Morgan Stanley. (2014). Alternative investments: innovative strategies for asset allocation. Retrieved from

Morgenson, G. (2009). When bond ratings get stale. Retrieved from

Moultrie, J. (2019). FMEA (Failure Modes and Effects Analysis). Retrieved from

Nikolića, D. M., Jednak, S., Benković, S., & Poznanić, V. (2011). Project finance risk evaluation of the Electric power industry of Serbia. Energy Policy, 39(10), 6168-6177.

Peng, J., & Brucato, P. F. (2004). An empirical analysis of market and institutional mechanisms for alleviating information asymmetry in the municipal bond market. Journal of Economics and Finance, 28(2), 226-238.

Piney, C. (2003). Risk identification: combining the tools to deliver the goods. Paper presented at the PMI® Global Congress 2003−EMEA, The Hague, South Holland, The Netherlands.

Raz, T., Shenhar, A. J., & Dvir, D. (2002). Risk management, project success, and technological uncertainty. R&D Management, 32(2), 101-109.

Renigier-Biłozor, M., Wisniewski, R., Kaklauskas, A., & Biłozor, A. (2014). Rating methodology for real estate markets – Poland case study. International Journal of Strategic Property Management, 18(2), 198-212.

Ribeiro, M. I. F., & Ferreira, F. A. F. (2017). A fuzzy knowledgebased framework for risk assessment of residential real estate investments. Technological and Economic Development of Economy, 23(1), 140-156.

S&P Global Ratings. (2018). S&P Global Ratings definitions. Retrieved from

Segismundo, A., & Miguel, P. A. C. (2008). Failure mode and effects analysis (FMEA) in the context of risk management in new product development: a case study in an automotive company. International Journal of Quality & Reliability Management, 25(9), 899-912.

Standard & Poor᾽s. (2014). Project finance ratings criteria reference guide. Retrieved from

Tang, T. T. (2009). Information asymmetry and firm᾽s credit market access: evidence from moody᾽s credit rating format refinement. Journal of Financial Economics, 93(2), 325-351.

The European Group of Valuer᾽s Associations. (2003). European Property and Market Rating: A Valuer᾽s Guide. Retrieved from

United Nations Economic Commission for Europe Real Estate Market Advisory Group. (2012). Evaluation of real estate property and market risk for real estate backed financial products. Retrieved from

Yescombe, E. R. (2002). Principles of project finance. Elsevier.