Safe Collateral, Arm’s-Length Credit: Evidence from the Commercial Real Estate Market

Lamont K Black, John Krainer, Joseph B Nichols and Stijn Van Nieuwerburgh

The Review of Financial Studies, 2020, vol. 33, issue 11, 5173-5211

Abstract: Two main creditors exist in commercial real estate: arm’s-length investors and banks. We model commercial mortgage-backed securities (CMBS) as the less informed source of credit. In equilibrium, these investors fund properties with a low probability of distress, and banks fund properties that may require renegotiation. As a natural experiment, we test the model using the collapse of the CMBS market during 2007–2009, when banks funded both collateral types. Our results show that properties likely to have been securitized were less likely to default or be renegotiated. This suggests that securitization in this market funds safe collateral.

JEL-codes: G21 G23 G32 R33 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Working Paper: Safe Collateral, Arm’s-Length Credit: Evidence from the Commercial Real Estate Market (2017)
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