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Author:Nichols, Joseph B. 

Report
An Analysis of the Impact of the Commercial Real Estate Concentration Guidance

This paper analyzes aspects of the interagency guidance issued in 2006, titled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices.”1 The recent financial crisis and recession provide an opportunity to consider the relationship between the guidance and banks’ commercial real estate (CRE) concentrations and performance during the downturn. This paper also analyzes how the share of banking institutions with high levels of CRE concentration, as defined in the guidance, has changed over time (part 2); documents the effect of CRE concentrations on bank failures ...
Reports and Studies

Discussion Paper
From Plans to Starts: Examining Recent Trends in Manufacturing Plant Construction

Manufacturing structures investment is the largest component by value of U.S. nonresidential structure investment and has been growing quickly in the post-pandemic period. Figure 1 documents the significant extent to which the construction of manufacturing plants has contributed to growth in overall nonresidential construction. The surge in investment in manufacturing construction has occurred despite the higher interest rate environment, driven by government incentives associated with the Inflation Reduction Act (IRA) and the CHIPS and Science Act (CHIPS), and market forces such as increased ...
FEDS Notes , Paper 2025-01-14

Working Paper
Recourse as Shadow Equity: Evidence from Commercial Real Estate Loans

We study the role that recourse plays in the commercial real estate loan contracts of the largest U.S. banks. We find that recourse is valued by lenders and is treated as a substitute for conventional equity. At origination, recourse loans have rate spreads that are at least 20 basis points lower and loan-to-value ratios that are around 3 percentage points higher than non-recourse loans. Dynamically, recourse affects loan modification negotiations by providing additional bargaining power to the lender. Recourse loans were half as likely to receive accommodation during the COVID-19 pandemic, ...
Finance and Economics Discussion Series , Paper 2021-079

Working Paper
Safe Collateral, Arm's-Length Credit : Evidence from the Commercial Real Estate Mortgage Market

When collateral is safe, there are less opportunities for things to go wrong. We examine matching between collateral and creditors in the commercial real estate mortgage market by comparing loans in commercial mortgage backed securities (CMBS) conduits and bank portfolios. We model CMBS financing as lower cost but less informed, such that only safe collateral is funded by CMBS. This prediction is tested using the 2007-2009 shutdown of the CMBS market as a natural experiment. The loans funded by banks that would have been securitized are less likely to default or be renegotiated, indicating ...
Finance and Economics Discussion Series , Paper 2017-056

Conference Paper
Differences across originators iin CMBS loan underwritten

Proceedings , Paper 1123

Working Paper
No News is Bad News: Monitoring, Risk, and Stale Financial Performance in Commercial Real Estate

As financial intermediaries, banks have a key role in producing information and managing the risks on diverse loan portfolios. An important input into this process is ongoing collection of financial performance from borrowers. Using supervisory data on commercial real estate loans (CRE), this paper studies relationships between the content and timeliness of borrower-reported performance, internal bank risk ratings, and subsequent loan performance. Banks heavily rely on borrower reporting when setting risk ratings, despite the fact that borrowers with stale financials are more likely to ...
Finance and Economics Discussion Series , Paper 2025-032

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