Throwing Good Money After Bad? Cash Infusions and Distressed Real Estate
Francis Longstaff and
Eduardo S. Schwartz
Real Estate Economics, 1996, vol. 24, issue 1, 23-41
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. Copyright American Real Estate and Urban Economics Association.
References: Add references at CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00678 link to full text (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
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 ().