Abstract
This research empirically examines cross-sectional property- and credit-risk determinants of credit spreads for commercial real estate senior loans. In contrast to previous studies, we exploit a new large data set of commercial real estate mortgages of German real estate banks concentrating on senior lending activities from 2015 to 2019. These mortgages have not been securitized into CMBS loans and thus, belong to the on-balance activities of the lenders. Our results are largely consistent with theoretical predictions. In particular, credit spreads are positively related to the cap rate, reflecting the property risk, and the loan-to-value ratio, reflecting the credit risk. In focusing on senior loans, we are able to place the results in a precise context of property- and mortgage-related impacts.
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