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Big is beautiful: The impact of bank–borrower relationship and sponsor size on credit spreads and underwriting fees in commercial real estate lending

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  • Haffki, Ricarda
  • Mager, Ferdinand
  • Hennig, Kerstin

Abstract

This study uses a granular dataset to examine the impact of relationships between banks and borrowers and sponsor sizes on the credit spread and the associated underwriting fees of commercial real estate loans. This study focuses on commercial real estate banks that keep the loans on their books and do not use commercial mortgage-backed securities to transfer the credit risk to the capital market. Our findings reveal that credit spreads are lower for borrowers with a prior relationship with the bank; however, the impact of repeated lending varies across sponsor sizes. The prior relationship primarily reduces fees for small and medium-sized sponsors, whereas loans with large sponsors experience a stronger beneficial relationship effect in the credit spread.

Suggested Citation

  • Haffki, Ricarda & Mager, Ferdinand & Hennig, Kerstin, 2023. "Big is beautiful: The impact of bank–borrower relationship and sponsor size on credit spreads and underwriting fees in commercial real estate lending," Global Finance Journal, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:glofin:v:58:y:2023:i:c:s1044028323000789
    DOI: 10.1016/j.gfj.2023.100883
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    More about this item

    Keywords

    Commercial real estate; Relationship lending; Credit spreads; Fees; Banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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