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)|
|Number of pages||22|
|Journal||Real Estate Economics|
|State||Published - Jan 1 1996|
All Science Journal Classification (ASJC) codes
- Economics and Econometrics