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Commercial Real Estate Investors

Paper Session

Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Pier
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Zhonghua Wu, Florida International University

Commercial Real Estate Market Structure and the Transaction Liquidity: A Social Network Analysis

Melanie Zhang
,
University of Reading
Anupam Nanda
,
University of Reading
Steven Devaney
,
University of Reading

Abstract

The study analyses the market network structure evolution of the selected commercial real estate (CRE) markets in the United Kingdom. While previous studies discuss investors’ behaviours at an aggregate level but assuming investors make decisions independently, this paper investigates the transaction counterparties and their transaction networks, using Social Network Analysis (SNA) to explain the role changes of foreign investors, the evolution of transaction network structure, and the influences of the changes to market liquidity. Results from selected metro markets in 2001-2015 show that, the increasing number of foreign investors provide excess market demands but have not effectively improved the asset circulation. Only a certain number of foreign investors act as “core investors” and release the liquidity in the market. The UK CRE market structure follows an evolution process of “loose links – core-domain disassortative – integrated assortative” structure, and the structure is sensitive to the changes of market condition. VECM model suggests that the market structure formation has impacts on pricing efficiency. The results provide a new vision on analysing the influences of overseas investors, market liquidity and stability.

Slow-Moving Capital and Firesales In Real Estate Markets

Joseph Nichols
,
Federal Reserve Board
Jung-Eun Kim
,
University of Texas-Austin
John Krainer
,
Federal Reserve Bank of San Francisco

Abstract

"Owners of real assets often have informational advantages over other investors about asset-specific cash flows and local market conditions. Sudden declines in local property values can significantly constrain investors currently active in the local market. These investors may have
to sell their assets quickly and have less access to credit due to the decline in the value of their collateral. This opens up the market to outside investors who lack the same informational advantages. In this paper we document the characteristics of transactions in the commercial
real estate over a full boom and bust cycle. We find that in times of stress, the volume of transactions in hard-hit markets falls. The composition of transactions changes, with entry from out-of-market buyers. Out of market buyers consistently pay less for properties, by about 14 basis points, both during boom and bust markets."

Institutional Cross-Ownership and Firm Value: Evidence from Real Estate Investment Trusts

Chongyu Wang
,
University of Florida
Tingyu Zhou
,
Florida State University
David Ling
,
University of Florida

Abstract

This paper contributes to the ongoing debate about whether and how institutional cross-ownership (ICO) affects firm behavior. Using a sample of equity REITs, which provide significant advantages for isolating a monitoring channel, we find a robust and positive relation between ICO and REIT firm value. The positive relation between ICO and firm value is driven mainly by motivated investors and becomes stronger when we construct our ICO measures using blockholdings. Our difference-in-differences (DID) analysis, using mergers between institutional investors, suggests a causal relation exists between ICO and firm value. After investigating various channels through which ICO could affect firm behavior, we conclude that asset allocation decisions and performance are the most plausible explanations. Our finding that the monitoring associated with ICO aids managers in their portfolio disposition strategies further supports this conclusion. This enhanced monitoring leads to increased property portfolio returns as well as more geographic diversification.

Information Asymmetries, Financial Constraints and Institutional Investment: Evidence from the Real Estate Market

Alexander van de Minne
,
Massachusetts Institute of Technology
Dragana Cvijanovic
,
University of Warwick
Stani Milcheva
,
University College London

Abstract

In this paper we analyze the underlying economic mechanisms that might be driving the observed patterns in commercial real estate prices, as an interplay between buyer and seller characteristics (in terms of their size, capital constraints, management skill and market knowledge), and the timing and geographical location of these transactions. By jointly modelling the institutional investors’ decision to invest in a particular real estate market and the effect of such decision on real estate prices and holding periods, we find that, controlling for property characteristics, time-varying location characteristics, and investor characteristics: largest buyers (sellers) tend to pay (sell for) a price premium for the otherwise identical property at the time of purchase (sale), relative to the smallest buyers (sellers). Keeping investor size and investor financing constraints constant, more informed sellers tend to sell at a premium, while more informed buyers tend to buy at a discount. Furthermore, more informed sellers (buyers) hold properties for longer. These results point to a significant role of private valuations and investor market informedness in commercial real estate markets, when the financing choice is taken into account.
Discussant(s)
David Ling
,
University of Florida
Michael Reher
,
University of California-San Diego
Erik Devos
,
University of Texas-El Paso
Jim Clayton
,
York University
JEL Classifications
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
  • G1 - General Financial Markets