Shuffling Through the Bargain Bin: Real Estate Holdings of Public Firms

Abstract

Constructing a novel database on the real estate holdings of public firms, we show that distressed firms sell their real estate assets at a discount relative to healthy firms. We find that distress discount in real estate assets is less pronounced for sellers with less liquidity-constrained industry peers and in machinery-heavy industries. We also document that asset redeployability and the availability of potential buyers are two important property-specific determinants of the distress discount. Additionally, firms' property portfolios that are less redeployable with less potential buyers exacerbate the negative impact of financial distress on the cost of borrowing.

Keywords: Bank loan, collateral discount, real estate transactions, foreign demand

JEL Classification: G32, G33, R33