Commercial Real Estate
Paper Session
Saturday, Jan. 8, 2022 3:45 PM - 5:45 PM (EST)
- Chair: Moussa Diop, University of Southern California
Recourse as Shadow Equity: Evidence from Commercial Real Estate Loans
Abstract
We study the role that recourse plays in the commercial real estate loan contracts of the largest U.S. banks. We find that recourse is valued by lenders and is treated as a substitute for conventional equity. At origination, recourse loans have rate spreads that are at least 20 basis points lower and loan-to-value ratios that are around 3 percentage points higher than non-recourse loans. Dynamically, recourse affects loan modification negotiations by providing additional bargaining power to the lender. Recourse loans were half as likely to receive accommodation during the COVID-19 pandemic, and the modifications that did occur entailed a relatively smaller reduction in payments.Investment with Social Impact: Evidence from Commercial Real Estate Investment by Public Pension Funds
Abstract
This paper studies whether and how investments by public pension funds result in a different social impact, measured by employment growth, relative to investments by other large investors. Using commercial real estate (CRE) investments as a laboratory, I compare direct pension fund CRE investments to a counterfactual of real estate private equity (REPE) CRE investments. I document that CRE investments by public pension funds are associated with 3.5% higher zip code employment relative to REPE CRE investments. The effect is more pronounced for investments in the pension fund's home state and for pension funds with more political appointees on their board make investments that have a larger impact on employment. I also provide evidence for two potential mechanisms: (1) after a pension fund invests, $40M of additional capital from other investors flows to the invested zip code; and (2) pension funds invest 28% more CAPEX into their properties than REPE funds. Furthermore, bottom quartile return investments exhibit large positive employment impact, especially for home state investments, evidence that suggests a trade-off between returns and social impact.Price Diffusion across International Private Commercial Real Estate Markets
Abstract
Commercial real estate prices tend to co-move across the world. This paper explores the spatiotemporal aspects of global price movements. We consider two channels where prices may spill over between global cities: (i) through a dominant market and (ii) through ‘neighboring’ markets. Neighboring is defined as the degree to which markets are connected by investors in terms of the overlap in ownership of the commercial real estate. Our analysis shows significant ripple effects in commercial real estate prices across 22 markets from 2005 to 2019. In particular, London is found to be the dominant market and price shocks from London significantly diffuse across other global cities in the short run. Additionally, shocks from neighboring markets are important in the short run. In the long run, macro-economic factors play a much more critical role. The spillover effect through both channels is more predominant during the financial crisis. In fact, the dominant market channel is mostly driven by the financial crisis. The neighboring market channel is significant throughout the economic cycle.Discussant(s)
Brent W. Ambrose
,
Pennsylvania State University
Liang Pang
,
Pennsylvania State University
Chris Redfearn
,
University of Southern California
N. Edward Coulson
,
University of California-Irvine
JEL Classifications
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location