Current Issues in the Analysis of Commercial Real Estate

This paper identifies and discusses a number of current issues regarding our understanding of commercial real estate markets. These issues include: 1) accurate estimation of the quantity and location of our nation's commercial space; 2) an understanding of the linkage between the space and capital markets for commercial real estate; 3) identification of the macroeconomic factors that affect the rate of return on commercial property and whether local market factors also affect the rate of return; 4) problems associated with measuring the return characteristics of equity investments in commercial property (including measures of the diversification benefits and inflation-hedging abilities of this asset class); 5) a better understanding of rental markets, including good measures of changes in effective rents over time; and 6) examination of the rationale for ownership of commercial space by corporate users. This paper reviews recent research related to these questions and suggests future research that should prove to be fruitful.     

LOGISTICS SALIENCE IN A CHANGING ENVIRONMENT

The primary purpose of this paper was to empirically explore some of the reasons that logistics has become more important, or salient, in comparison to other functions within the firm. A survey of 296 managers across multiple industries in the U.S. found logistics becomes more important within the firm when the industry increases in uncertainty, when there is an emphasis on time‐based competition, when there is greater adoption of information technology, and when there is an emphasis on cross‐functional integration.     

Why managers divest—Evidence from New Zealand's largest companies

Chief Executives from New Zealand's largest companies were surveyed to distinguish divesting and nondivesting companies, and to identify the relative importance of the factors and motives which led to the divestment of 208 business units in the period 1985 through 1990. The divesting companies were considerably larger and faster growing than nondivestors. The typical divestment was motivated by the need to convert unattractive assets into liquid form which could then be held to strengthen the balance sheet, or reinvested in either the core business or new areas.     

Call Options and Liquidation in Commercial Mortgage Financing

This paper models a commercial real estate project where a wealth-constrained manager uses outside debt financing to purchase a project who's return depends on future economic conditions and the manager's investment in the project. It is shown that it is inefficient to finance the project with callable debt. This prediction is consistent with observed real estate financing practice. I also model the outcome of financial distress allowing for (1) debt forgiveness, (2) equity in exchange for debt forgiveness, and (3) foreclosure. The model motivates (1) why commercial real estate loans are often foreclosed, and (2) why lenders foreclose assets at fire-sale prices.     

AN EMPIRICAL EXAMINATION OF RELATIONSHIP MAGNITUDE

Based upon a review of the extant literature, it is proposed that the structure of an interorganizational relationship is composed of relationship type and the under‐researched construct of relationship magnitude. Specifically, it is hypothesized that relationship magnitude, a second order construct composed of trust, commitment, and dependence, affects relationship type, which affects the perception of value of the relationship. The results of a survey analyzed through structural equation modeling support these hypotheses.     

Decomposition of Fraud‐Risk Assessments and Auditors' Sensitivity to Fraud Cues*

Practitioners and regulators are concerned that when auditors perceive management's attitude or character as indicative of low fraud risk, they are not sufficiently sensitive to high levels of incentive or opportunity risks in their overall fraud‐risk assessments. In this study, we examine whether a fraud‐triangle decomposition of fraud‐risk assessments (that is, separately assessing attitude, opportunity, and incentive risks prior to assessing overall fraud risk) increases auditors' sensitivity to opportunity and incentive cues when perceptions of management's attitude suggest low fraud risk. In an experiment with 52 practicing audit managers, we find that auditors who decompose fraud‐risk assessments are more sensitive to opportunity and incentive cues when making their overall assessments than auditors who simply make an overall fraud‐risk assessment. However, this increased sensitivity to opportunity and incentive cues appears to happen only when those cues suggest low fraud risk. When opportunity and incentive cues suggest high fraud risk, auditors are equally sensitive to those cues whether they use a decomposition or a holistic approach. We discuss and examine potential explanations for this finding.