Abstract
This paper studies the impact of bank monitoring on the risk of US equity REITs. Using a unique, hand-collected data sample of mortgage balances, I show that bank screening and monitoring of REIT assets via utilizing secured mortgage financing (vs unsecured, public debt) lowers the overall company risk of a REIT. At the asset level, screening results in retail and office assets with higher acquisition values and located in primary markets, i.e., more transparent assets, being pledged as collateral. Further, I find evidence consistent with the role of lender monitoring for secured mortgage loans and show that properties located in closer proximity to a REIT’s headquarters are more likely to be pledged as collateral for a mortgage.
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Notes
Additional property characteristics that a bank would consider such as Lease Terms and Net Operating Income are not observed in the data sample.
The look back period used by Kenneth French for the Momentum factor is 12 months. A portfolio is formed at the end of month t-1
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Acknowledgments
I’d like to thank James B. Kau, an anonymous referee, Linda Allen, CF Sirmans, Ko Wang, Su Han Chan, Timothy Riddiough, Joseph Weintrop, David Dennis, Moussa Diop, Vladimir Khasin, Rinat Letdin and seminar participants of Baruch College Finance Department Seminar, Midwest Finance Association Meetings 2015, American Real Estate Society Meetings 2015 and American Real Estate and Urban Economics Association Meetings 2016 for their helpful feedback and comments. Alev Yalman and Paul Dunn provided excellent research assistance. The remaining errors are my own.
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Letdin, M. Under the Lender’s Looking Glass. J Real Estate Finan Econ 55, 435–456 (2017). https://doi.org/10.1007/s11146-016-9561-4
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DOI: https://doi.org/10.1007/s11146-016-9561-4