From Origination to Renegotiation: A Comparison of Portfolio and Securitized Commercial Real Estate Loans

Posted: 7 Jul 2017  

Lamont K. Black

DePaul University - Driehaus College of Business; Center for Financial Services

John Krainer

Federal Reserve Bank of San Francisco

Joseph Nichols

Board of Governors of the Federal Reserve System

Date Written: July 5, 2017

Abstract

We use a unique loan-level dataset to compare portfolio and securitized commercial real estate loans. The paper documents how the types of loans banks choose to hold in their portfolios differ substantially from the types of loans the same banks securitize. Banks tend to hold loans that are "non-standard" in some observable dimension. These loans are riskier and more likely to become dlinquent or distressed. Conditional on default, we find that banks are significantly more likely to extend portfolio loans than is the case for securitized loans. Our results suggest that banks have a comparative advantage in funding risky assets with contracts that may require flexibility in the event of distress.

Keywords: Securitization; CMBS; Commercial banks; Asymmetric information

JEL Classification: G14, G21, D82, G33

Suggested Citation

Black, Lamont K. and Krainer, John and Nichols, Joseph, From Origination to Renegotiation: A Comparison of Portfolio and Securitized Commercial Real Estate Loans (July 5, 2017). Journal of Real Estate Finance and Economics, Vol. 55, No. 1, 2017. Available at SSRN: https://ssrn.com/abstract=2997659

Lamont K. Black

DePaul University - Driehaus College of Business ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-5617 (Phone)
312-362-6566 (Fax)

HOME PAGE: http://driehaus.depaul.edu/faculty-and-staff/faculty/Pages/black-lamont.aspx

Center for Financial Services

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States

HOME PAGE: http://driehaus.depaul.edu/about/centers-and-institutes/center-for-financial-services/Pages/default.

John Krainer

Federal Reserve Bank of San Francisco ( email )

101 Market Street
Economic Research Department
San Francisco, CA 94105
United States

Joseph Nichols (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2983 (Phone)

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