Commercial Real Estate 2
Paper Session
Saturday, Jan. 4, 2025 2:30 PM - 4:30 PM (PST)
- Chair: Stanimira Milcheva, University College London
Quantitative Easing and Global Commercial Real Estate Price Spillovers
Abstract
The effectiveness of unconventional monetary policies (UMPs) and their international spillovers to global asset prices and capital flows have dominated policy discussions. This paper is the first to document the effect of UMP on global commercial real estate (CRE) markets. Even though the size of CRE as asset class is substantial, the subject has received very limited interest in research studying the effect of monetary policy. We empirically find that a domestic UMP significantly impacts US CRE pricing through credit supply. We additionally document persistent price effects on foreign non-US CRE markets. This effect largely stems from global CRE market spillovers. In fact, global CRE market spillovers are found to amplify the original domestic UMP effect on US CRE prices. We aim to enrich our empirical findings with a two-country DSGE-model that includes CRE pricing.Real Estate Values and Corporate Yield Spreads
Abstract
We investigate the impact of corporate real estate values on corporate bond yields. A higher collateral value of real estate can decrease expected loss and lower default probability, thus decreasing yield spreads, while the costly reversibility of real estate might heighten firms’ riskiness, resulting in higher yield spreads. Our results show a negative correlation between real estate values and corporate yield spreads, supporting the collateral value channel. Specifically, a one-standard deviation increase in real estate values as a proportion of net fixed assets results in a 4.2 basis points reduction in yield spreads for all U.S. corporate bonds in our sample, increasing to 20 basis points for speculative-grade bonds. Furthermore, this effect is more pronounced in the presence of local housing price shocks and is particularly significant if the firm has experienced substantial changes in real estate holdings. Our research suggests that the market value of corporate real estate holdings is a determinant of bond yield spreads, contributing to a deeper understanding of the dynamics between collateral assets and unsecured corporate debt.Overlapping Real Asset Networks and Corporate Investment
Abstract
This study shows how the interconnected networks of real assets among corporations affect their corporate investment choices, which highlights the importance of asset networks in determining firm investment. We first develop a theoretical model that predicts commonalities resulting from a firm’s asset network will lead to higher optimal investment, and we test these predictions using spatial econometrics and network methods. Controlling for both industry and headquarters co-investments, we find a 1% increase in the instrumented asset network co-investments relative to its long-term average is associated with a 0.35% increase in the typical firm’s rate of investment. We also find that the effect of the headquarters network (asset network) on firm investment decays (increases) with the extent of a firm’s geographic complexity (gauged by the number of locations in which a firm has a physical presence). We further show our documented asset network effect prevails among firms with higher corporate real estate holdings, which can be pledged as collateral for debt financing. A 1% increase in the debt issuance of companies in a firm’s asset network relative to its long-term average is associated with a 0.37% increase in a firm’s debt issuance.Discussant(s)
Meagan McCollum
,
University of Tulsa
Carles Vergara
,
IESE Business School
Mariya Letdin
,
Florida State University
Alex van de Minne
,
University of Connecticut
JEL Classifications
- R0 - General