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

Risk Overhang and Loan Portfolio Decisions: Small Business Loan Supply before and during the Financial Crisis

“…Commercial real estate loans also tend to be very illiquid: Levitin and Wachter () report that approximately 80% of U.S. commercial real estate debt in 2011 was held in portfolio rather than securitized, and even higher percentages were held in portfolio during the 1990s and early 2000s. Moreover, the findings of Black, Krainer, and Nichols () suggest that both SME loans and commercial real estate loans are consistent with condition (b) in our broad definition of loan illiquidity: the authors conclude that borrowers with difficult‐to‐assess projects (e.g., small businesses) tend to be matched with lenders that have comparative advantages in loan renegotiation, and commercial real estate loans with high default probabilities are more likely to be renegotiated to extend their contractual maturities. Finally, given the strong procyclicality of nonperforming business loans and commercial real estate loans (see Figure ), these loans are likely to become even more illiquid during economic downturns (Furlong and Knight ).…”

Intermediary Segmentation in the Commercial Real Estate Market

“…Downs and Xu (2015) find that banks are much quicker to resolve distressed loans than CMBS. Black et al (2017Black et al ( , 2018 show that banks specialize in lending against risky properties where monitoring and renegotiation are important. Meanwhile, Ghent and Valkanov (2016) show that CMBS disproportionately hold loans against larger properties, consistent with a superior ability to diversify risk.…”

Intermediary Segmentation in the Commercial Real Estate Market

“…Downs and Xu (2015) find that banks are much quicker to resolve distressed loans than CMBS. Black et al (2017Black et al ( , 2018 show that banks specialize in lending against risky properties where monitoring and renegotiation are important. Meanwhile, Ghent and Valkanov (2016) show that CMBS disproportionately hold loans against larger properties, consistent with a superior ability to diversify risk.…”

“…First, our data expands the coverage of the CRE market relative to these papers. Black et al (2017Black et al ( , 2018 use the same data sources for CMBS and bank loan portfolios, but their analysis does not include life insurers. Downs and Xu (2015) and Ghent and Valkanov (2016) use data which includes insurers but does not come from regulatory filings, causing many fields pertaining to loan 4 There is a large theoretical and empirical literature on this topic.…”

“…For banks, we rely on quarterly, loan-level data from Schedule H.2 of the FR Y-14Q, which has also been used in a few recent papers (Black et al, 2017;Glancy and Kurtzman, 2018). This data is collected by the Federal Reserve as part of the Comprehensive Capital Analysis and Review (CCAR) for banks with more than $50 billion in assets when averaged over the previous four quarters.…”