Date: Wednesday 10th/Dec/2025 at 11:00 AM Eastern Time 

Speaker: Soon Hyeok Choi (Rochester Institute of Technology)

Paper Title: Pricing Government Contract Risk Premia: Evidence from the 2025 Federal Lease Terminations (joint with Cameron LaPoint (Yale SOM))

Abstract: Recent shifts in federal real estate policy, marked by lease cancellations and non-renewals, challenge the long-standing perception of government contracts as a secure and stable investment. We investigate how federal lease cancellations impact the pricing of government contract risk premia. Using unanticipated Department of Government Efficiency (DOGE) cancellations as a shock to commercial mortgage default risk, we find that first-loss CMBS bond tranches backed by loans tied to DOGE-notified leases experience a persistent 4% decline in price, with large, negative spillover effects to bond prices, delinquency rates, and rental cash flows tied to nearby private-tenant leases. These results reflect that early termination options were previously perceived by investors as a dormant clause. Applying arbitrage pricing models of commercial lease contingencies confirms the underpricing of risk associated with government tenants. Simulations of tail risks from early termination exposure result in aggregate property value losses in excess of $575 million for the Washington, D.C. securitized office market alone -- well above total potential taxpayer savings from canceled lease payments.

Registration: https://us06web.zoom.us/webinar/register/WN_A0Fs7yACSPSOZy4r_wj0_w