Throwing Good Money After Bad? Cash Infusions and Distressed Real Estate

Bradford Cornell, Francis Longstaff and Eduardo S. Schwartz

Real Estate Economics, 1996, vol. 24, issue 1, 23-41

Abstract: When a leveraged real estate project experience cash‐flow problems, the owner must either inject additional cash or default on the mortgage. We show that it is not optimal for the owner to default as soon as net cash flow becomes negative. Surprisingly, the owner can expropriate some of the mortgage lender's wealth by injecting cash and continuing to pay interest. When the owner has cash constraints, outside investors may be able to extract significant economic rents by financing distressed real estate projects. These results have interesting implications for mortgage lending and the pattern of real estate transaction volume.

Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/1540-6229.00678

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: https://EconPapers.repec.org/RePEc:bla:reesec:v:24:y:1996:i:1:p:23-41

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1080-8620

Access Statistics for this article

Real Estate Economics is currently edited by Crocker Liu, N. Edward Coulson and Walter Torous

More articles in Real Estate Economics from American Real Estate and Urban Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().