From Origination to Renegotiation: A Comparison of Portfolio and Securitized Commercial Real Estate Loans

  • Lamont Black
  • John Krainer
  • Joseph NicholsEmail author


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.


Securitization CMBS Commercial banks Asymmetric information Renegotiation 

JEL Classification

G14 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.


  1. Agarwal, S., Amromin, G., Ben-David, I., Chomsisengphet, S., & Evanoff, D. (2011). The role of securitization in mortgage renegotiation. Journal of Financial Economics, 102, 559–578.CrossRefGoogle Scholar
  2. Akerlof, G. A. (1970). The market for “lemons”: quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84, 488–500.CrossRefGoogle Scholar
  3. Ambrose, B., & Sanders, A. B. (2003). Commercial mortgage (CMBS) default and prepayment analysis. Journal of Real Estate Finance and Economics, 26, 179–196.CrossRefGoogle Scholar
  4. An, X., Deng, Y., & Gabriel, S. (2011). Asymmetric information, adverse selection, and the pricing of CMBS. Journal of Financial Economics, 100, 304–325.CrossRefGoogle Scholar
  5. Archer, W. R., Elmer, P. J., Harrison, D. M., & Ling, D. C. (2002). Determinants of multifamily mortgage default. Real Estate Economics, 30, 445–473.CrossRefGoogle Scholar
  6. Black, L., Chu, C. S., Cohen, A., & Nichols, J. B. (2012). Differences across originators in CMBS loan underwriting. Journal of Financial Services Research, 42, 115–134.CrossRefGoogle Scholar
  7. Ciochetti, B., Deng, Y., Lee, G., Shilling, J. D., & Yao, R. (2003). A proportional hazard model of commercial mortgage default with origination bias. Journal of Real Estate Finance and Economics, 27, 5–23.CrossRefGoogle Scholar
  8. Coleman, A. D. F., Esho, N., & Sharpe, I. G. (2006). Does bank monitoring influence loan contract terms? Journal of Financial Services Research, 30, 177–198.CrossRefGoogle Scholar
  9. Dehejia, R. H., & Wahba, S. (2002). Propensity score-matching methods for nonexperimental causal studies. Review of Economics and Statistics, 84(1), 151–161.Google Scholar
  10. Deng, Y., J.M Quigley, and A.B. Sanders (2004). Commercial mortgage terminations: evidence from CMBS. USC Working paper.Google Scholar
  11. Downs, David H. and Pisun (Tracy) Xu (2014). “Commercial real estate, distress and financial resolution: portfolio lending versus securitization.” Working paper.Google Scholar
  12. Esaki, H., S. L’Heureux, and M.P. Snyderman (1999). Commercial mortgage defaults: an update. Real Estate Finance16, 81–86.Google Scholar
  13. Furfine, C. (2010). Deal complexity, loan performance, and the pricing of commercial mortgage backed securities. Kellogg School of Management working paper.Google Scholar
  14. Ghent, A. and R. Valkanov (2013). Advantages and disadvantages of securitization: evidence from commercial mortgages. Working paper.Google Scholar
  15. Keys, B. J., Mukherjee, T., Seru, A., & Vig, V. (2009). Financial regulation and securitization: evidence from subprime loans. Journal of Monetary Economics, 56, 700–720.CrossRefGoogle Scholar
  16. Piskorski, T., Seru, A., & Vig, V. (2010). Securitization and distressed loan renegotiation: evidence from the subprime mortgage crisis. Journal of Financial Economics, 97, 369–397.CrossRefGoogle Scholar
  17. Puranandam, A. (2011). Originate-to-distribute model and subprime mortgage crisis. Review of Financial Studies, 24, 1881–1915.CrossRefGoogle Scholar
  18. Snyderman, M. P. (1991). Commercial mortgages: default occurrence and estimated yield impact. Journal of Portfolio Management, 18, 82–87.CrossRefGoogle Scholar
  19. Stafford, T., Linder, D., & Jones, R. (2010). CMBS under stress. Frequently asked questions about key provisions in CMBS pooling and servicing agreements addressing mortgage loan modifications. Real Estate Finance, 27(1), 3–6.Google Scholar
  20. Stein, J. C. (2002). Information production and capital allocation: decentralized versus hierarchical firms. Journal of Finance, 57, 1891–1921.CrossRefGoogle Scholar
  21. Titman, S., & Tsyplakov, S. (2010). Originator performance, CMBS structures, and the risk of commercial mortgages. Review of Financial Studies, 23, 3558–3594.CrossRefGoogle Scholar
  22. Titman, S., Tompaidis, S., & Tsyplakov, S. (2005). Market imperfections, investment flexibility, and default spreads. Journal of Finance, 59, 165–205.CrossRefGoogle Scholar
  23. Vandell, K. D., Barnes, W., Hartzell, D., Kraft, D., & Wendt, W. (1993). Commercial mortgage defaults: proportional hazards estimation using individual loan histories. Journal of American Real Estate Urban Economic Association, 21, 451–480.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York (outside the USA) 2016

Authors and Affiliations

  1. 1.Driehaus College of BusinessDePaul UniversityChicagoUSA
  2. 2.Federal Reserve Bank of San FranciscoSan FranciscoUSA
  3. 3.Board of Governors of the Federal Reserve SystemWashingtonUSA

Personalised recommendations