Appraisal Reduction Amount (ARA)
Asset-Backed Securities glossary · Asset Specific Nuances
Definition
In CMBS, the reduction in a defaulted loan's book value based on a new property appraisal, used to limit servicer advances and interest flows.
Appraisal Reduction Amount (ARA) in plain English
CMBS are bonds backed by loans on big commercial buildings like malls and offices. When a borrower stops paying and the building turns out to be worth far less than the loan, the "Appraisal Reduction Amount" is the write-down that officially marks that gap after a fresh appraisal. Think of it as admitting "this $10 million loan is really only $6 million of value now" — a $4 million reduction. That honest re-marking matters because it stops the loan servicer from throwing good money after bad (advancing cash it may never recover) and adjusts how interest flows to bondholders.
Also called: ARA
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Practice Appraisal Reduction Amount (ARA)
Under the stated deal mechanics, how does the ARA affect monthly interest distributions?
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