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

Lamont K. Black, John Krainer and Joseph B. Nichols
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Joseph B. Nichols: https://www.federalreserve.gov/econres/joseph-b-nichols.htm

No 2017-19, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: There are two main creditors 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. We test the model using the 2007-2009 collapse of the CMBS market as a natural experiment, when banks funded both collateral types. Our results show that properties likely to have been securitized were less likely to default or be renegotiated, consistent with the model. This suggests that securitization in this market funds safe collateral.

JEL-codes: G21 G23 G32 R23 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2017-09-07
New Economics Papers: this item is included in nep-ban and nep-ure
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Journal Article: Safe Collateral, Arm’s-Length Credit: Evidence from the Commercial Real Estate Market (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2017-19

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DOI: 10.24148/wp2017-19

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