Shopping Center Financing: Pricing Loan Default Risk

Peter Chinloy () and James Musumeci ()
Additional contact information
Peter Chinloy: Department of Finance and Real Estate The American University Washington, D.C. 20016, http://www.kogod.american.edu/
James Musumeci: Department of Finance Southern Illinois University Carbendale, Illinois 62901, http://www.cba.siu.edu/finance/

Journal of Real Estate Research, 1994, vol. 9, issue 1, pages 49-64

Abstract: The financing structure of a shopping center is decomposed into an income security and two put options. These put options are respectively held by the borrower against the lender for default, and by the lender against an insurer or reinsurer. The prices of the put option depend on the loan-to-value ration of the loan and on the risk of the investment. The interest rate charged on the loan is the sum of four components: a riskless rate, lender production costs, and the net price of the put options. The risk structure of the loan depends on the loan-to-value ratio and the lender production costs. The model has implications for shopping center investors and lenders. For investors, the trade-off between loan-to-value ratio and interest rate is evaluated explicitly, so that an optimal loan contract can be structured. For lenders, a method of pricing a shopping center loan is presented.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 1994
View list of references

Downloads: (external link)
http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol09n01/v09p049.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:jre:issued:v:9:n:1:1994:p:49-64

Ordering information: This journal article can be ordered from
Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
http://aux.zicklin.b ... u/jrer/about/get.htm

Access Statistics for this article

Journal of Real Estate Research is edited by Dr. Ko Wang

More articles in Journal of Real Estate Research from American Real Estate Society
Address: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Series data maintained by JRER Graduate Assistant/Webmaster ().