Recourse as Shadow Equity: Evidence from Commercial Real Estate Loans

David Glancy, Robert Kurtzman, Lara Loewenstein and Joseph B. Nichols
Additional contact information
Joseph B. Nichols: https://www.federalreserve.gov/econres/joseph-b-nichols.htm

No 2021-079, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study the role that recourse plays in the commercial real estate loan contracts of the largest U.S. banks. We find that recourse is valued by lenders and is treated as a substitute for conventional equity. At origination, recourse loans have rate spreads that are at least 20 basis points lower and loan-to-value ratios that are around 3 percentage points higher than non-recourse loans. Dynamically, recourse affects loan modification negotiations by providing additional bargaining power to the lender. Recourse loans were half as likely to receive accommodation during the COVID-19 pandemic, and the modifications that did occur entailed a relatively smaller reduction in payments.

Keywords: Commercial real estate; Recourse; LTV (search for similar items in EconPapers)
JEL-codes: G21 G22 G23 R33 (search for similar items in EconPapers)
Pages: 32 p.
Date: 2021-12-17
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.federalreserve.gov/econres/feds/files/2021079pap.pdf (application/pdf)

Related works:
Journal Article: Recourse as shadow equity: Evidence from commercial real estate loans (2023)
Working Paper: Recourse as Shadow Equity: Evidence from Commercial Real Estate Loans (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-79

DOI: 10.17016/FEDS.2021.079

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