The Cost of Debt for REITs: The Mortgage Puzzle

Linda Allen and Mariya Letdin

Journal of Real Estate Research, 2020, vol. 42, issue 2, 239-260

Abstract: Established, low-leverage equity REITs with access to the public debt market rely on both non-recourse mortgages and full recourse bonds/notes as sources of long-term debt. Interest rates on secured, non-recourse debt (mortgages) include a costly strategic default option premium and do not benefit from a firm’s overall financial capacity. We find that use of non-recourse, mortgage debt is more likely for longer-term, smaller borrowings, and during recessionary periods, consistent with REITs valuing financial flexibility in their capital structure. The higher rates for property-level debt suggest a benefit to REITs versus single asset investors in terms of cost of capital. Since REITs also access debt at the corporate level, the spread between long-term non-recourse debt and long-term recourse debt implies a benefit to the REIT structure.

Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/08965803.2020.1822130 (text/html)
Access to full text is restricted to subscribers.

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:taf:rjerxx:v:42:y:2020:i:2:p:239-260

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rjer20

DOI: 10.1080/08965803.2020.1822130

Access Statistics for this article

Journal of Real Estate Research is currently edited by William Hardin and Michael Seiler

More articles in Journal of Real Estate Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().