Distance Effects in CMBS Loan Pricing: Banks versus Non-Banks
47 Pages Posted: 7 Nov 2019
Date Written: November 4, 2019
The composition of lenders has changed dramatically since the crisis, and non-bank lenders have become important players in the commercial mortgage-backed securities (CMBS) markets. Comparing banks to non-bank lenders, we investigate whether the geographical distance between lenders, borrowers and their properties is reflected in the pricing of US mortgages that were included in US CMBS pools during the 2000 to 2017 period. We find that a doubling in bank borrower distance is associated with a 2.5 basis point increase in the spread, and that this effect is more pronounced if the loan is collateralized by a riskier property. Geographical distance does not seem to have any effect on the loan spread for mortgages granted by non-bank lenders. The difference in loan pricing across originator types (even after controlling for key mortgage and property characteristics) suggests banks and non-bank lenders have different incentives, lending technologies, and/or different types of borrowers.
Keywords: CMBS, non-bank lending, geographical distance, asymmetric information, loan spread
JEL Classification: G21, G32
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