Recourse as Shadow Equity: Evidence from Commercial Real Estate Loans

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