J Real Estate Finan Econ https://doi.org/10.1007/s11146-017-9645-9 Corporate Diversification and the Cost of Debt Evidence from REIT Bank Loans and Mortgages Irem Demirci 1 · Piet Eichholtz 2 · Erkan Y ¨ onder 3 © Springer Science+Business Media, LLC, part of Springer Nature 2018 Abstract This paper investigates whether corporate diversification by property type and by geography reduces the costs of debt capital. It employs asset-level information on the portfolios of U.S. REITs to measure diversification and looks at two of their main sources of debt capital: 1,173 commercial mortgages and 952 bank loans. The paper finds that diversification across different property types does indeed depend- ably reduce the cost of these different types of debt. The effect is about 7 basis points for bank loans if a firm’s property Herfindahl Index is lowered by one standard devia- tion and this effect gets stronger for REITs with worse financial health – as measured by the interest coverage ratio. The corresponding effect for commercial mortgages is around 22 basis points for collateral diversification by property type. After the crisis, the salience of the collateral asset increases. For diversification across regions, we do not find a consistent relationship between real asset diversification and loan pricing. Keywords REIT · Diversification · Cost of debt JEL Codes G31 · L25 · R33  Erkan Y ¨ onder erkan.yonder@ozyegin.edu.tr Irem Demirci irem.demirci@novasbe.pt Piet Eichholtz p.eichholtz@maastrichtuniversity.nl 1 Nova School of Business and Economics Campus de Campolide, 1099-032, Lisboa, Portugal 2 School of Business and Economics, Maastricht University, P.O. Box 616, 6200 MD, Maastricht, The Netherlands 3 Ozyegin University, Nisantepe Mh. Orman Sk. 34–36, Alemdag, Cekmekoy, 34794, Istanbul, Turkey