Finance and Economics Discussion Series (FEDS)
June 2024
CRE Redevelopment Options and the Use of Mortgage Financing
David Glancy, Robert Kurtzman, and Lara Loewenstein
Abstract:
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 U.S. 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.
Keywords: Commercial real estate, Cash buyers, Redevelopment
DOI: https://doi.org/10.17016/FEDS.2024.046
PDF: Full Paper
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