Environmental Risk Perceptions of Commercial and Industrial Real Estate Lenders

Abstract

This study analyzes the risk perceptions of commercial and industrial mortgage lenders related toenvironmental contamination. Two research questions are addressed. The first is whether perceived risks vary with a property’s remediation/cleanup status. The second is whether market conditions have an intervening effect on environmental risk. An analysis of national lender survey data found significant differences in perceived risk before, during and after cleanup, with most lenders unwilling to make a loan before cleanup and a majority willing to loan at typical rates and terms after cleanup. The study also found that strong market demand significantly reduces risk while weak demand increases risk.