Debt Capacity of Real Estate Collateral

We study whether real estate assets have a greater positive influence on firm leverage than other tangible assets. Using a large sample of COMPUSTAT firms, we find a significant positive relation between tangibility and leverage in general, and the relation is strongest for real estate collateral. Furthermore, we find that the relation holds only for credit‐constrained firms, i.e., those likely to highly value the additional borrowing capacity of real estate. Our results imply that knowing the composition of a firm's tangible assets is important in understanding its leverage. Our findings could help explain why real estate investment trusts are relatively highly leveraged, even though debt offers them no tax benefit.     

Explaining the Variation in REIT Capital Structure: The Role of Asset Liquidation Value

We test the Shleifer-Vishny hypothesis that asset liquidation values influence both firm leverage and the choice of debt maturity. Using panel data on real estate investment trusts, we estimate a simultaneous equation model and find that firms specializing in the most (least) liquid assets use more (less) leverage and longer (shorter) maturities. The evidence also suggests that, for REITs, debt maturity and leverage are substitutes, consistent with the theory and predictions of Barclay, Marx and Smith.     

Institutional Investment,Asset Illiquidity and Post‐Crash Housing Market Dynamics

We examine institutional investors’ entry into the equity side of the single‐family detached housing market using an asset illiquidity framework. We find that institutional investors purchased owner‐occupied houses after the real estate crisis for approximately 6.3–11.8% less than owner‐occupiers. The large discount was in addition to distressed sale and cash purchase discounts which, when combined, highlight the low liquidation value for owner‐occupied housing. The results suggest that asset illiquidity is an important cost of leverage in the owner‐occupied housing market.     

Value Creation in REIT Property Sell-Offs

We examine major sales of real property by public U.S. Real Estate Investment Trusts (REITs) 1992–2002. We find that abnormal shareholder returns are significantly positive, a result that is consistent with findings for conventional firms that sell off real estate. Because REITs do not pay taxes, this finding supports the view that abnormal returns in real estate sell-offs by all types of firms are derived largely from asset allocation efficiencies and do not result exclusively from tax benefits. Shareholder returns are lower in sell-offs motivated by a desire to reduce long-term debt, as is consistent with financial theory regarding the information content of leverage decisions. Returns are inversely related to the firm's operating performance prior to the sell-off announcement, further supporting the case that improved asset efficiencies create value in real estate sell-offs.     

Product Market Competition and Corporate Real Estate Investment under Demand Uncertainty

This article theoretically and empirically analyzes the interactions among corporate real estate investment, product market competition and firm risk. In our model, firms own strategic real estate or lease generic real estate. Our model predicts that strategic real estate ownership is positively correlated with industry concentration and negatively related to demand uncertainty. Also, firm risk is higher for firms with more strategic real estate operating in a more concentrated market. This prediction arises because smaller investments induce greater market competition, which effectively eliminates the right tail of the firm's profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.     

Global Financial Integration and Real Estate Security Returns

Have globalization and increasing economic and financial integration affected the rates of return of publicly traded real estate companies around the world? Using a set of multifactor models for annual data for 946 firms from 16 countries over the sample period, 1995–2002, we estimate the impact of a country's economic openness on returns of publicly traded real estate firms, controlling for the effects of global capital markets, domestic macroeconomic conditions and firm‐specific variables. We find that a country's real estate security excess (risk‐adjusted) returns are negatively related to its openness. The results are robust across different multifactor model specifications and are a testament to increasing global financial integration and its interplay with the real estate sector.     

Asset Growth and Stock Performance: Evidence from REITs

In this article, we examine the impact of asset growth rates on the future stock performance of 308 publicly traded real estate investment trusts (REITs). We observe that fast‐growing REITs tend to underperform slow growing REITs. However, we find evidence that the growth effect is significantly less negative for REITs selling at a premium to net asset value. In addition, we observe the asset growth effect only in the subsample of REITs that engages in equity issuance over the next 12 months. The combined evidence suggests contemporaneous equity dilution, which has not been considered in previous studies, may provide an explanation for the underperformance of fast‐growing firms.     

房地产的虚拟性与宏观经济稳定

本文从虚拟经济的角度深入剖析了房地产的虚拟资产特性，指出房地产是一种虚拟资产．房地产这种虚拟资产的特性是其虚拟性介于普通商品和金融资产之间。文章同时指出．正是房地产的这种虚拟资产特性使其成为联系实体经济和虚拟经济的纽带。除了扰动作用以外，房地产更能起到稳定经济的作用。这表现在两个方面：一方面。与金融资产相比．房地产价格具有相对的稳定性．这使其成为商业银行发放贷款的重要的抵押品；另一方面，房地产价格的长期稳定增长对货币发行量的稳定增长有重要影响。可见，房地产的虚拟资产特性对于银行贷款和货币供给的稳定增长．从而对整个经济的稳定增长具有重要意义。     

CEO career horizon,corporate governance,and real options: The role of economic short‐termism

Research Summary: Combining studies on real options theory and economic short‐termism, we propose that, depending on CEOs’ career horizons, CEOs have heterogeneous interests in strategic flexibility, and thus, have different incentives to make real options investments. We argue that compared to CEOs with longer career horizons, CEOs with shorter career horizons will be less inclined to make real options investments because they may not fully reap the rewards during their tenure. In addition, we argue that long‐term incentives and institutional ownership will mitigate the relationship between CEOs’ career horizons and real options investments. U.S. public firms as an empirical setting produced consistent evidence for our predictions. Our study is the first to theoretically explain and empirically show that a CEO's self‐seeking behavior will impact real options investments. Managerial Summary: This article helps to explain how a CEO's self seeking‐behavior may shape a firm's real option investment, which could result in different level of strategic flexibility. We argue that CEOs with short career horizons have less time to exercise their firms’ real options, which should lower the investments in the firms’ real options portfolios relative to CEOs with long career horizons. We study a sample of U.S. public firms and find strong evidence that a CEO's expected tenure in the firm is positively related to the real options investments at the firm level. We find that this agency issue can be mitigated by adopting appropriate corporate governance mechanisms such as long‐term incentives and institutional investors.     

The Characteristics of Takeover Target Firms: The Case of the English Brewing Industry, 1945–1960

The paper examines if takeovers target the “correct” firms. Using the English brewing industry (1945–1960) as a case study, size and conventional performance criteria of taken-over, independent and merging firms are assessed, and shown not to be valid target indicators. Comparison of a real estate/property utilization parameter – average asset value per “tied house” – for each firm category, shows that taken-over firms have the lowest average asset value per tied house. Low average asset value per house characterizes firms which, by failing to optimize their property assets, are poor performers. Takeover therefore, in this case, targets the “correct” firms.     

Diversification strategy,capital structure,and the Asian financial crisis (1997–1998): evidence from Singapore firms

We use agency theory to predict the influence of related and unrelated product diversification on a firm's level of debt financing. Further, we argue that the link between diversification and capital structure is moderated by the environment in which firms operate. Using SAS PROC MIXED, we fit a mixed‐effects model to our unique six‐year longitudinal dataset (1995–2000) of 245 publicly listed Singapore firms. Our data spans the period of the Asian Financial Crisis (1997–1998). We find that firms pursuing unrelated product diversification take on less debt financing in stable environments, but more debt financing in dynamic environments. Using longitudinal structural equation modeling, we find a reciprocal relationship between a firm's product diversification strategy and its debt financing level. Copyright © 2009 John Wiley & Sons, Ltd.     

The Role of the Underlying Real Asset Market in REIT IPOs

A leading explanation for IPO cycles is time-varying supply and demand for the underlying assets of the firms that are considering going public. We test this hypothesis using REIT IPOs, taking advantage of the relative transparency of the underlying real asset markets. We document links between REIT IPO activity and both the conditions of the underlying real estate market and the price of REITs. We find no significant relation between the heat of the IPO market and post-IPO operating performance, implying homogeneous firm quality across IPO cycles. Finally, we show that lagged IPO proceeds are related to future increases in investment and in capacity utilization.     

Toward a behavioral theory of real options: Noisy signals,bias, and learning

Research Summary: We develop a behavioral theory of real options that relaxes the informational and behavioral assumptions underlying applications of financial options theory to real assets. To do so, we augment real option theory's focus on uncertain future asset values (prospective uncertainty) with feedback learning theory that considers uncertain current asset values (contemporaneous uncertainty). This enables us to incorporate behavioral bias in the feedback learning process underlying the option execution/termination decision. The resulting computational model suggests that firms that inappropriately account for contemporaneous uncertainty and are subject to learning biases may experience substantial downside risk in undertaking real options. Moreover, contrary to the standard option result, greater uncertainty may decrease option value, making commitment to an investment path more effective than remaining flexible. Managerial Summary: Executives recognize the need to make uncertain investments to grow their business while mitigating downside risk. The analogy between financial options and real corporate investments provides an appealing method to consider the practical challenge of such investment decisions. Unfortunately, the “real options” analogy seems to break down in practice. We identify how a second form of uncertainty confounds real options intuition, leading managers to overestimate the value of uncertain investments. We present a behavioral real options model that accounts for both forms of uncertainty and suggest how uncertainty interacts with behavioral bias in the option execution/termination decision. Our model facilitates assessment of the conditions under which investments in uncertain opportunities are usefully considered as real options, and provides a means to evaluate their attractiveness.     

Real Estate Fund Openings and Cannibalization

This article examines the trade‐offs in launching new real estate funds, specifically open‐end, direct‐property funds. This investment vehicle, which is designed to provide the risk‐return benefits of private market real estate, is available to retail investors in a number of countries. At the same time, these funds are also subject to liquidity risk, because they hold an inherently illiquid asset in an open‐end structure. This format presents fund‐family managers with unique challenges, particularly with the decision to open new funds. The data consist of 2,127 German fund openings across 76 fund families in 12 asset classes over the 1992–2010 period. Including a wide range of asset classes allows for a comparison between real estate and other investment objectives. We find a substantial cannibalization effect across the existing real estate funds of a family, while we note the opposite effect—i.e., flows into existing funds increase following a fund opening within the same objective—for all other asset classes. Our analysis of fund opening determinants shows that inflows mitigate the cannibalization risk for new real estate funds. Additional evidence highlights the role of scale and scope economies in real estate fund openings. Overall, the results provide new insights into the relatively large size and small number of real estate funds when compared to mutual funds dedicated to other investment objectives.     

CEO–CFO team optimism: Commercial real estate transactions and REIT performance

The managerial optimism literature concentrates on CEOs neglecting other executive team members. We evaluate the interplay of the optimism levels of the CEOs and CFOs of real estate investment trusts, and study their commercial real estate transactions. We find that firms led by optimistic CEO/CFO teams pay 3% more than their peers for their asset acquisitions if cash ratio increases by one percentage point. Our findings also exhibit inferior stock performance by optimistic teams following a transaction. Conversely, diversity in terms of CEO/CFO optimism prevents firms from overpaying, serving as a soft governance mechanism with salience to firm performance.     

Banking Relationships and REIT Capital Structure

This article examines the evolution of real estate investment trust (REIT) capital structure in the new REIT era with a focus on the effects of banking relationships on REIT capital structure. Using a unique sample of REITs from 1992 to 2003, we find that, after controlling for firm characteristics, REITs with banking relationships are more likely to obtain long‐term debt ratings and subsequently issue public debt. Moreover, REITs with banking relationships tend to use less secured debt and have lower leverage. These findings support the notion that banking relationships facilitate REITs' access to the public debt markets and help explain why REITs shift from traditional mortgage financing to bank debt and public capital market financing. The results also support the proposition that firm leverage should be positively related to the amount of a firm's secured debt.     

Integrating Illiquid Assets into the Portfolio Decision Process

We consider the issues associated with modeling the decision to invest in an illiquid asset, such as real estate, over an extended period of time. Markets for illiquid assets tend to display certain characteristics: for example, significant time‐till‐sale and correlation in the rates of return over time. More importantly, as the liquidity of a market cannot be an issue if an investor never needs to liquidate an asset, we focus on how the liquidity of a market interacts with an individual's uncertain need to liquidate. We show that the optimal strategy is state contingent, if possible. We also show that the penalty associated with an illiquid investment depends on the characteristics of other assets being held in the portfolio, on the characteristics of liquidity shocks and on the interaction between time and behavior. We show that borrowing to pay for a liquidity shock cannot overcome all of the costs of owning an illiquid asset. In contrast, borrowing at t = 0 benefits from the complementarity in the assets. In a simpler model, we show that the portfolio perspective makes illiquid assets more valuable to an investor with a longer time horizon.     

Another Take on Real Estate's Role in Mixed‐Asset Portfolio Allocations

This article examines real estate's role in institutional mixed‐asset portfolios using both private‐ and public‐real estate indices, as a means of examining varying real estate‐related risk/return opportunities. In so doing, this article also examines the effects of: (1) increasing the investment horizon, (2) placing constraints on the maximum allocation to any one asset class, and (3) varying the risk preferences of investors. The empirical results suggest—using infinite‐horizon returns and all of the caveats that accompany such a perspective—that real estate allocations of approximately 10–15% of the mixed‐asset portfolio represent an upper bound for most investors. For those investors preferring low‐risk portfolios, (unlevered) private real estate is the vehicle serving this allocation preference; for those investors preferring high‐risk portfolios, public real estate (with its embedded leverage of 40–50%) is the vehicle serving this allocation preference—with such vehicles serving as substitutes for a variety of noncore real estate strategies. In some sense, the distinction between private and public real estate is more about the use of leverage. For those investors preferring moderate‐risk portfolios, an intermediate‐leverage approach seems optimal.     

Evolution of the American Real Estate and Urban Economics Association1

This article summarizes the 45‐year history of the American Real Estate and Urban Economics Association (AREUEA). It describes how AREUEA was created in the mid‐1960s by a few academics interested in promoting real estate research. It tracks the Association's growth into a highly respected international association of real estate academics and researchers employed by industry and governments. The article also examines the activities of its members: officers elected, awards presented, conferences organized and scholars' contributions to its main academic publication—Real Estate Economics. The article identifies the most prolific contributors to the Journal (located both in the United States and internationally) and the impact that the Journal's publications have had on real estate research. Finally, we describe how real estate research interests have changed over time.     

The Markets for Real Estate Assets and Space: A Conceptual Framework

In this study, we present a simple analytic framework that divides the real estate market into two markets: the market for real estate space and the market for real estate assets. After describing the size and character of flows and stocks in the U.S. real estate market, we use our framework to demonstrate the important connections between the space and asset markets. We illustrate how these real estate markets are affected by the nation's macroeconomy and financial markets, tracing out the impacts resulting from various exogenous shocks on rents, asset prices, construction and the stock of real estate.