Strategic Default and Renegotiation: Evidence from Commercial Real Estate Loans

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• Erkan Yönder (Concordia University)
• Thursday 10 February 2022, 13:00-14:00
• Online.

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We study strategic default in commercial real estate loans in a setting where the borrowers hold multiple such loans and the borrower cash flow is disclosed. We find that the majority of delinquent loans are held by borrowers that continue to meet their debt obligations in their other mortgages and that also have cash flow to meet their delinquent obligations. The pervasiveness of strategic defaults is robust to alternative ways to identify them. Loans in their final year, interest-only loans, and loans with high Current Loan-to-Value are more likely to be subject to strategic default. Our IV analysis reflects that strategically defaulted borrowers are also more likely to have their loans restructured.

This talk is part of the Cambridge Finance Workshop Series series.

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