From Origination to Renegotiation: A Comparison of Portfolio and Securitized Commercial Real Estate Loans
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We use a unique loan-level dataset to compare portfolio and securitized commercial real estate loans. The paper documents how the types of loans banks choose to hold in their portfolios differ substantially from the types of loans the same banks securitize. Banks tend to hold loans that are “non-standard” in some observable dimension. These loans are riskier and more likely to become delinquent or distressed. Conditional on default, we find that banks are significantly more likely to extend portfolio loans than is the case for securitized loans. Our results suggest that banks have a comparative advantage in funding risky assets with contracts that may require flexibility in the event of distress.
KeywordsSecuritization CMBS Commercial banks Asymmetric information Renegotiation
JEL ClassificationG14 G21 D82 G33
We thank seminar participants at the UF/FSU Real Estate Symposium, the Stress Test Modeling Research Conference, the Interagency Risk Quantification Forum, the AREUEA Annual Meetings, the Southern Finance Association Annual Meetings, the Federal Reserve Bank of Cleveland, Ohio University, University of Cincinnati, as well as Travis Davidson, Ronel Elul, Emre Ergungor, Mark Lueck, Wayne Passmore, and Gokhan Torna for helpful comments, and Joseph Cox and Erin McCarthy for research assistance.
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