TY - JOUR
T1 - Real Assets, Collateral and the Limits of Debt Capacity
AU - Giambona, Erasmo
AU - Mello, Antonio S.
AU - Riddiough, Timothy J.
N1 - Funding Information:
We appreciate comments from Viral Acharya, Piet Eichholtz, John Geanakoplos, John Harding, Jay Hartzell, Dwight Jaffee, Igor Makarov, Alan Moreira, Justin Murfin, Frank Nothaft, Joe Pagliari, Mark Parrell, Florian Peters, Peter Pontuch, Adriano Rampini, Steve Ross, David Shulman, Matthew Spiegel, Bob Van Order, Nancy Wallace and Tony Yezer. We also thank seminar participants at Duisenberg School of Finance, European Central Bank, Federal Reserve Board, George Washington University, Georgia State University, The Wharton School, University of Amsterdam, University of California at Irvine, University of Southern California, University of Connecticut, University of Miami, University of Wisconsin at Madison, Warwick Business School, the Pre-WFA Summer Real Estate Symposium (2011), the FMA Meeting (2011) and the international AREUEA conference (2012). We are particularly grateful to Green Street Advisors for providing data and comments on early drafts of the paper, and to the anonymous referee who provided numerous suggestions that have significantly improved the paper. Yno van Haster provided excellent research assistance. We are responsible for any remaining errors.
Publisher Copyright:
© 2017 American Real Estate and Urban Economics Association
PY - 2018/12/1
Y1 - 2018/12/1
N2 - We develop a model in which better quality firms separate themselves by issuing unsecured debt and committing to maintain a strong balance sheet, something lower-quality firms find too costly to do. Lower-quality firms, in contrast, pledge real assets in secured debt transactions. However, during turbulent financial periods, pooling occurs in the secured debt market, which raises the average quality of firms in that market. We use the 1998 Russian crisis together with the role played by Fannie Mae and Freddie Mac for apartment REITs to highlight the relation between financing outcomes and firm type.
AB - We develop a model in which better quality firms separate themselves by issuing unsecured debt and committing to maintain a strong balance sheet, something lower-quality firms find too costly to do. Lower-quality firms, in contrast, pledge real assets in secured debt transactions. However, during turbulent financial periods, pooling occurs in the secured debt market, which raises the average quality of firms in that market. We use the 1998 Russian crisis together with the role played by Fannie Mae and Freddie Mac for apartment REITs to highlight the relation between financing outcomes and firm type.
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U2 - 10.1111/1540-6229.12207
DO - 10.1111/1540-6229.12207
M3 - Article
AN - SCOPUS:85021838019
VL - 46
SP - 836
EP - 886
JO - Real Estate Economics
JF - Real Estate Economics
SN - 1080-8620
IS - 4
ER -