Debt Capacity of Real Estate Collateral

28 Pages Posted: 28 Aug 2014

See all articles by Erasmo Giambona

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate

Joseph H. Golec

University of Connecticut - Department of Finance

Armin Schwienbacher

SKEMA Business School

Multiple version iconThere are 2 versions of this paper

Date Written: Fall 2014

Abstract

We study whether real estate assets have a greater positive influence on firm leverage than other tangible assets. Using a large sample of COMPUSTAT firms, we find a significant positive relation between tangibility and leverage in general, and the relation is strongest for real estate collateral. Furthermore, we find that the relation holds only for credit‐constrained firms, i.e., those likely to highly value the additional borrowing capacity of real estate. Our results imply that knowing the composition of a firm's tangible assets is important in understanding its leverage. Our findings could help explain why real estate investment trusts are relatively highly leveraged, even though debt offers them no tax benefit.

Suggested Citation

Giambona, Erasmo and Golec, Joseph and Schwienbacher, Armin, Debt Capacity of Real Estate Collateral (Fall 2014). Real Estate Economics, Vol. 42, Issue 3, pp. 578-605, 2014, Available at SSRN: https://ssrn.com/abstract=2488247 or http://dx.doi.org/10.1111/1540-6229.12034

Erasmo Giambona (Contact Author)

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate ( email )

721 University Avenue
RM 640
Syracuse, NY 13244-2450
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315 443-4885 (Phone)

Joseph Golec

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Armin Schwienbacher

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777
France

HOME PAGE: http://sites.google.com/view/armin-schwienbacher

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