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

53 Pages Posted: 23 Dec 2015 Last revised: 20 Sep 2017

Irem Demirci

University of Mannheim

Umit G. Gurun

University of Texas at Dallas

Erkan Yönder

Ozyegin University

Date Written: March 7, 2017

Abstract

We construct a novel database on the real estate portfolio holdings for a comprehensive set of public firms between 2000 and 2013. We show that a distressed firm, on average, sells its real estate asset, most frequently used collateral type, at a discount of 22% relative to a healthy firm. We then identify asset deployability and the availability of potential buyers as two important determinants of the average price in a distress sale. Our loan level analysis indicates that bank loan spreads incorporate information on real estate assets’ alternative uses and the availability of their potential buyers. We use surges of foreign investor demand from countries with increased policy uncertainty as plausibly exogenous shocks to commercial real estate prices. Our results show that the firms with real estate portfolios that experience this price appreciation enjoy lower bank rates that we attribute to increased collateral values.

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

JEL Classification: G32, G33, R33

Suggested Citation

Demirci, Irem and Gurun, Umit G. and Yönder, Erkan, Shuffling Through the Bargain Bin: Real Estate Holdings of Public Firms (March 7, 2017). Available at SSRN: https://ssrn.com/abstract=2707617

Irem Demirci

University of Mannheim ( email )

L9 1-2 Room 303
Mannheim, 68131
Germany

Umit G. Gurun (Contact Author)

University of Texas at Dallas

2601 North Floyd Road
Richardson, TX 75083
United States

Erkan Yönder

Ozyegin University ( email )

Nisantepe Mah. Orman Sok.
Cekmekoy
Istanbul, 34794
Turkey

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