ON DEMAND: CROSS-COUNTRY EVIDENCE FROM COMMERCIAL REAL ESTATE ASSET MARKETS

Using over 25 years of quarterly U.S. and Japanese time series data, this paper examines the determinants of demand for an important class of real assets: commercial real estate. We specify a structural model of market equilibrium that considers direct effects of real investment on built asset price. Our empirical findings are consistent across countries and produce several new results. First, we find that real investment exerts a significant positive direct effect on asset price, which in turn feeds back to impact investment decisions. Second, idiosyncratic risk is found to be strongly positively related to asset price, and to complement supply effects. Third, systematic risk is priced as expected, where the strength of the relation between asset price and systematic risk is found to be higher than in previous studies of capital asset prices. Fourth, lagged values of price determinants (of up to two years) are consistently important in real asset demand estimation. Alternative explanations for our findings are analyzed and discussed. Implications for asset pricing model specification and interpretation are also considered.equity REIT; IPO; interest-rate sensitivity; risk-adjusted return performance

Determinants of Commercial Mortgage Choice

An analysis of the choice between conduit loans and traditional whole loans in commercial mortgages. The author compares conduit and whole loan programs, and discusses their differences and the effects of information technology on the mortgage choice problem. Conduit lending produces a more volatile source of funding in posted loan rates and more stability in terms of capital availability. The specific loan program characteristics associated with conduit lending are the greater ease of accessing loan program information, faster loan closing and broader selection. The longer-run implications are that higher quality borrowers will eventually disintermediate mortgage brokers due to improvements in information technology. This suggests that there will be fewer brokers working more efficiently with a larger number of borrowers. Consequently, deep as opposed to broad service provision is the inevitable result of advancing information technology and internet-based transactions.

Can Securitization Work? Economic, Structural and Policy Considerations

Structured asset securitization is capable of generating a number of economic benefits, including liquidity provision, an increased ability to manage risk, and value enhancement through the pooling and partitioning of cash flows. But the recent financial crisis has exposed numerous structural flaws, which has led many observers to question whether asset- and mortgage-backed securities should be classified as financial "weapons of mass destruction" that require strict containment and possibly even elimination. This paper considers the fundamental economic tradeoffs associated with securitization, with an eye towards policy development, concluding that asset securitization can work. Whether it actually will work depends on how policymakers respond to the significant challenges of reregulating the financial system. Finally, the specific case of securitization in China is considered in the context of institutional and political realities.