We study the role that recourse plays the in commercial real estate loan contracts in the portfolios of the largest US banks. We find that recourse is valued by lenders and is treated as a substitute for conventional equity. At origination, recourse loans receive loan rate spreads that are at...

Banks modify more CRE loans than CMBS, contributing to better loan performance when property incomes decline. However, banks have higher delinquency rates for less-stressed loans, consistent with modification policies encouraging strategic default. Motivated by these facts, we develop a tradeoff...