{"title":"Determinants of credit spreads and cash flow-related lending in commercial real estate","authors":"Ricarda Haffki , Kerstin Hennig","doi":"10.1016/j.ribaf.2024.102669","DOIUrl":null,"url":null,"abstract":"<div><div>The study examines risk-specific determinants of credit spreads and underwriting practices for non-recourse commercial real estate loans using property and loan characteristics. We use the case of banks that maintain their loans on balance sheets and concentrate on non-recourse financing of large cash flow-generating properties in Europe and North America. The unique dataset includes the bank’s credit loan ratings, used in a 2-stage least square estimation as an instrument for the LTV ratio to address endogeneity bias. Additionally, we use the debt yield premium as a second instrument to validate our results. Our findings demonstrate that default risk and credit spreads depend on potential changes in cash flow and property value, which may deteriorate future underwriting ratios, as well as on measures taken to mitigate this risk. The results indicate that banks effectively adjust the loan’s minimum debt yield ratio to potential negative changes.</div></div>","PeriodicalId":51430,"journal":{"name":"Research in International Business and Finance","volume":"74 ","pages":"Article 102669"},"PeriodicalIF":6.3000,"publicationDate":"2024-11-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Research in International Business and Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0275531924004628","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
The study examines risk-specific determinants of credit spreads and underwriting practices for non-recourse commercial real estate loans using property and loan characteristics. We use the case of banks that maintain their loans on balance sheets and concentrate on non-recourse financing of large cash flow-generating properties in Europe and North America. The unique dataset includes the bank’s credit loan ratings, used in a 2-stage least square estimation as an instrument for the LTV ratio to address endogeneity bias. Additionally, we use the debt yield premium as a second instrument to validate our results. Our findings demonstrate that default risk and credit spreads depend on potential changes in cash flow and property value, which may deteriorate future underwriting ratios, as well as on measures taken to mitigate this risk. The results indicate that banks effectively adjust the loan’s minimum debt yield ratio to potential negative changes.
期刊介绍：
Research in International Business and Finance (RIBAF) seeks to consolidate its position as a premier scholarly vehicle of academic finance. The Journal publishes high quality, insightful, well-written papers that explore current and new issues in international finance. Papers that foster dialogue, innovation, and intellectual risk-taking in financial studies; as well as shed light on the interaction between finance and broader societal concerns are particularly appreciated. The Journal welcomes submissions that seek to expand the boundaries of academic finance and otherwise challenge the discipline. Papers studying finance using a variety of methodologies; as well as interdisciplinary studies will be considered for publication. Papers that examine topical issues using extensive international data sets are welcome. Single-country studies can also be considered for publication provided that they develop novel methodological and theoretical approaches or fall within the Journal''s priority themes. It is especially important that single-country studies communicate to the reader why the particular chosen country is especially relevant to the issue being investigated. [...] The scope of topics that are most interesting to RIBAF readers include the following: -Financial markets and institutions -Financial practices and sustainability -The impact of national culture on finance -The impact of formal and informal institutions on finance -Privatizations, public financing, and nonprofit issues in finance -Interdisciplinary financial studies -Finance and international development -International financial crises and regulation -Financialization studies -International financial integration and architecture -Behavioral aspects in finance -Consumer finance -Methodologies and conceptualization issues related to finance
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