Credit Restrictions and the Market for Commercial Real Estate Loans

REAL ESTATE ECONOMICS, Vol. 24 No. 1

Posted: 5 Jul 1998

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

John D. Benjamin

American University - Kogod School of Business

Peter T. Chinloy

American University - Department of Finance and Real Estate

Abstract

This paper develops a model of the market for commercial real estate loans based on the variables used by investors and lenders in property decision-making: the income capitalization (cap) rate, the debt-coverage ratio and the loan-to-value ratio. Empirical results for aggregate United States real estate originations and commitments for 1970-93 indicate that loan demand is sensitive to the cap rate and to building permit issuance. The dominant criterion used by lenders is the debt-coverage ratio as opposed to the loan- to-value ratio, a finding which may have implications for underwriting standards and credit policy.

JEL Classification: E51

Suggested Citation

Ambrose, Brent W. and Benjamin, John D. and Chinloy, Peter, Credit Restrictions and the Market for Commercial Real Estate Loans. REAL ESTATE ECONOMICS, Vol. 24 No. 1, Available at SSRN: https://ssrn.com/abstract=9042

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

John D. Benjamin

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Department of Finance
Washington, DC 20016
United States
(202) 885-1892 (Phone)
(202) 885-1946 (Fax)

Peter Chinloy

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-1951 (Phone)
202-885-1992 (Fax)

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