Abstract

http://ssrn.com/abstract=5420
 
 

Citations



 


 



Throwing Good Money After Bad? Cash Infusions and Distressed Real Estate


Bradford Cornell


California Institute of Technology

Francis A. Longstaff


University of California, Los Angeles (UCLA) - Finance Area; National Bureau of Economic Research (NBER)

Eduardo S. Schwartz


University of California, Los Angeles (UCLA) - Finance Area; National Bureau of Economic Research (NBER); Centre for International Finance and Regulation (CIFR)

January 1994

UCLA Working Paper No 4-94

Abstract:     
When a leveraged real estate project experiences cash-flow problems, the owner must either inject additional cash or default on the mortgage. We show that it is not optimal for the owner to default as soon as net cash flow becomes negative. Surprisingly, the owner can expropriate some of the mortgage lender's wealth by injecting cash and continuing to pay interest. When the owner has cash constraints, outside investors may be able to extract significant economic rents by financing distressed real estate projects. These results have interesting implications for mortgage lending and the pattern of real estate transaction volume.

JEL Classification: G21

working papers series


Not Available For Download

Date posted: July 18, 1994  

Suggested Citation

Cornell, Bradford and Longstaff, Francis A. and Schwartz, Eduardo S., Throwing Good Money After Bad? Cash Infusions and Distressed Real Estate (January 1994 ). UCLA Working Paper No 4-94. Available at SSRN: http://ssrn.com/abstract=5420

Contact Information

Bradford Cornell (Contact Author)
California Institute of Technology ( email )
Pasadena, CA 91125
United States
310-825-2922 (Phone)
310-206-5455 (Fax)
Francis A. Longstaff
University of California, Los Angeles (UCLA) - Finance Area ( email )
Los Angeles, CA 90095-1481
United States
310-825-2218 (Phone)
310-206-5455 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Eduardo S. Schwartz
University of California, Los Angeles (UCLA) - Finance Area ( email )
Los Angeles, CA 90095-1481
United States
310-825-1953 (Phone)
310-206-5455 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for International Finance and Regulation (CIFR) ( email )
Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

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