Determinants of financing agreement in commercial real estate investment

Jerome Picault, Arnaud Simon and Fabrice Larceneux ()
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Jerome Picault: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Arnaud Simon: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Fabrice Larceneux: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper deals with the funding of institutional investors that invest in commercial real estate assets. The aim of this paper is to investigate what are the main factors that lead bankers to grant credits to institutional real estate investors. To explain the credit acceptance, the impact of many variables has to be explored. This bunch of variables can be synthetized in four dimensions: The quality of the borrower, the quality of the asset funded, the quality of the tenants (of the asset funded) and the quality of the funding contract. After having identified the different drivers, we explore what is the marginal contribution of each dimension on credit granting. To proceed, the methodology we selected is conjoint analysis. To sum up, it consists to construct different credit scenarios based on the four dimensions (for example: scenario 1: high quality building, low quality borrower, high quality tenants, low quality contract). Next, these scenarios are presented to bankers through interviews or online surveys. The aim is to ask them to express a preference/judgement to each scenario (ranking each scenario by order of preference, rating each scenario, propose an interest rate, indicate which scenarios are accepted). Finally, we implement a model to infer the contribution of each dimension on the preference of the bankers.In the end, this article could allow to develop a scoring indicator that aggregate all the idiosyncratic risk factors for commercial real estate in structured finance. It could represent a new tool for bank risk management departments to help them to manage their risks

Keywords: Real estate structured finance; Real estate quality; Conjoint Analysis and Commercial real estate financing (search for similar items in EconPapers)
Date: 2022-06
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Published in 28 th European Real Estate Society Conference, Jun 2022, Milan, Italy

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04347519

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