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Credit Restrictions and the Market for Commercial Real Estate Loans

Author

Listed:
  • Brent W. Ambrose
  • John Benjamin
  • Peter Chinloy

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.

Suggested Citation

  • Brent W. Ambrose & John Benjamin & Peter Chinloy, 1996. "Credit Restrictions and the Market for Commercial Real Estate Loans," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(1), pages 1-22, March.
    • Handle: RePEc:bla:reesec:v:24:y:1996:i:1:p:1-22
    DOI: 10.1111/1540-6229.00677
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    Cited by:

    1. Ron Donohue & Patric H. Hendershott, 2004. "Fund Flows and Commercial Real Estate Investment: Evidence from the Commercial Mortgage Market," Journal of Real Estate Research, American Real Estate Society, vol. 26(4), pages 417-442.
    2. Luis C. Mejia, 1999. "Availability of Credit and Loan Default: A Look at the Commercial Mortgage Supply Cycle," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 175-196.
    3. Leo Cremer, 2020. "Underwriting Limits and Optimal Leverage in Commercial Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 60(3), pages 375-395, April.

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