Under the Lender's Looking Glass

Abstract

This paper studies the impact of bank monitoring on the risk of US equity REITs. Using a unique, hand-collected data sample of mortgage balances, I show that bank screening and monitoring of REIT assets via utilizing secured mortgage financing (vs unsecured, recourse debt) lowers the overall company risk of a REIT. At the asset level, screening results in primarily retail and office assets located in primary markets, i.e. more transparent assets being pledged as collateral. Further, I find evidence consistent with the role of monitoring for secured, non-recourse mortgage loans.

Keywords: Secured Debt, Collateral, REIT, Leverage, Property Type, Lender Monitoring

JEL Classification: G31, G32