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"Commercial Mortgage Distress during the COVID-19 Pandemic: Evaluating the Impact of Government Aid and Mobility"
Abstract
This paper investigates how government aid and mobility affected the likelihood of financial distress for commercial mortgages during the COVID-19 pandemic by utilizing asset-backed security data on loan performance from 2019--2021. Commercial real estate is an industry that has experienced a substantial and prolonged disruption from the pandemic's economic consequences within the United States. For government aid, a dual perspective is employed by considering county-level measures of uptake activity for the Paycheck Protection Program (PPP) and Economic Injury Disaster loans (EIDL). Mobility is measured at the county-level using government data on daily transportation. Analysis of how these factors impacted loan distress during the pandemic is also broken down by property type to evaluate heterogeneity across different industries. Main findings for PPP uptake activity suggest that higher amounts of funding and loans appear to flow to counties with more negatively affected commercial properties, particularly in the case of retail and lodging, but they do not play a significant role overall in reducing probability of loan distress. These results supplement a growing body of literature that has primarily focused on the ability of the PPP to bolster employment. In contrast, when considering distress measures based on loan delinquencies, EIDL activity is found to correspond with lower overall loan distress during the pandemic. This provides some evidence about the efficacy of a program that has received less research attention than the PPP and is aimed at supporting operating expenses, rather than specifically targeting payroll. Finally, results for within-county shifts in population mobility during the pandemic period indicate that the financial well-being of commercial mortgages is adversely impacted by declines in travel. Effects of mobility were most robust for retail, office, and lodging properties. These findings are perhaps most applicable to policymakers and researchers seeking to assess the transmission of government policies during the pandemic. They are also potentially useful for those concerned with ongoing credit risk factors in the commercial real estate market.
Keywords: commercial mortgages, COVID-19, distress, PPP, EIDL, mobility