Featured Product

    FED Paper Examines Segmentation in the Commercial Real Estate Market

    November 15, 2019

    FED published a working paper that examines the intermediary segmentation in the commercial real estate, or CRE, market. The study shows that bank, life insurer, and commercial mortgage-backed securities (CMBS) lender originations differ substantially by interest rate, loan-to-value (LTV), size, property type, and time to maturity at origination. Lenders differ in regulation, funding structure, and other institutional characteristics affecting their incentives to originate particular types of loans and these institutional differences can explain the segmentation in the data. For instance, short-duration liabilities incentivize banks to make short-term, floating-rate loans; risk-sensitive capital requirements incentivize life insurers to make safer loans; and greater diversification enables CMBS to make larger loans.

    The study examines the dimensions along which commercial real estate loan originations differ by lender type, the sources of segmentation in the market, and the implications of segmentation for how the market responds to a shock. Banks, life insurers, and CMBS lenders originate the vast majority of U.S. commercial real estate loans. While these lenders compete in the same market, they differ in how they are funded and regulated and, therefore, specialize in loans with different characteristics. The authors harmonize loan-level data across the lenders and review how their CRE portfolios differ. Three intermediary types provision most CRE lending in the United States: banks, life insurers, and CMBS lenders.

    For this study, the authors harmonize comprehensive loan-level data sources across lender types and identify key loan terms and property characteristics along which intermediaries segment themselves. The data include granular details on loan terms and property characteristics for the commercial real estate loan portfolios of nearly 30 of the largest banks in the United States, all life insurers, and all loans in publicly issued, non-Agency CMBS deals. They then build a simple model that is informed by the incentives facing the lender types and estimate how various loan terms and property characteristics differentially affect the required return across the lender types. The model allows to estimate the value to borrowers of having access to different types of lenders that vary in how they are regulated and funded. 

     

    Related Link: Working Paper (PDF)

    Keywords: Americas, US, Banking, Insurance, Credit Risk, Commercial Real Estate, LTV, FED

    Related Articles
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697