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.
Original language | English (US) |
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Pages (from-to) | 1-22 |
Number of pages | 22 |
Journal | Real Estate Economics |
Volume | 24 |
Issue number | 1 |
DOIs | |
State | Published - 1996 |
All Science Journal Classification (ASJC) codes
- Accounting
- Finance
- Economics and Econometrics