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Working Paper
CRE Redevelopment Options and the Use of Mortgage Financing
A significant share of commercial real estate (CRE) investment properties---about half by our estimates---are purchased without a mortgage. Using comprehensive microdata on transactions in the U.S. CRE market, we analyze which types of properties are purchased without a mortgage, highlighting the important role of renovation or redevelopment options. We show that mortgage-financed properties are less likely to be subsequently redeveloped, and that owners anticipate these redevelopment frictions and avoid mortgage financing for properties with greater redevelopment options. These effects ...