CRE Redevelopment Options and the Use of Mortgage Financing
A significant share of commercial real estate (CRE) investment properties—about half by our estimates—are purchased without a mortgage. Using comprehensive microdata on transactions in the US CRE market, we analyze which types of properties are purchased without a mortgage, highlighting the important role of renovation or redevelopment options. We show that mortgage-financed properties are less likely to be subsequently redeveloped, and that owners anticipate these redevelopment frictions and avoid mortgage financing for properties with greater redevelopment options. These effects were even stronger during the COVID-19 pandemic, when uncertainty increased redevelopment option values.
Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.
Suggested Citation
Glancy, David, Robert Kurtzman, and Lara Loewenstein. 2024. “CRE Redevelopment Options and the Use of Mortgage Financing.” Federal Reserve Bank of Cleveland, Working Paper No. 24-15. https://doi.org/10.26509/frbc-wp-202415
This work by Federal Reserve Bank of Cleveland is licensed under Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
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