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Commercial Real Estate: Acquisition and Capital Flows

Paper Session

Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM

Loews Philadelphia, Washington B
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Robert Connolly, University of North Carolina

Do Principles Pay in Real Estate Crowdfunding?

Tingyu Zhou
,
Concordia University
Denis Schweizer
,
Concordia University

Abstract

This article uses a hand-collected sample of 733 projects from seven leading U.S.-based real estate crowdfunding (RECF) platforms. The authors analyze how property, financing, and crowdfunding campaign characteristics explain the proposed returns of RECF campaigns based on the principles of investment risks in the real estate market. The authors find that projects with higher average investment risk tend to have higher proposed returns. The financing characteristics indicate that equity-financed projects and higher leverage levels are positively correlated with higher proposed returns. They are also associated with the campaign characteristics of later payments to investors and higher minimum investment amounts.

Geographically Overlapping Real Estate Assets, Liquidity Spillovers, and Liquidity Multiplier Effects

Chongyu Wang
,
University of Connecticut
Jeffrey Cohen
,
University of Connecticut
John Glascock
,
University of Connecticut

Abstract

Local capital scarcity can have important implications for market liquidity and firm productivity. In this paper, we propose a theoretical framework to model competition for scarce capital across state/MSA borders, and test the model’s comparative static implications with a spatial econometrics model. Our empirical model mitigates potential bias in estimation that arises due to the viola-tion of Stable Unit Treatment Value Assumption (SUTVA), which leads to an indirect treatment effect (competition effect) on geographic neighbors. Overall, our empirical findings confirm that negative spatial spillovers arise due to competition for scarce capital, and this competition effect is amplified during local and national economic downturns.

Economic Fundamentals, Capital Expenditures and Asset Dispositions

Eva Steiner
,
Cornell University
Brent Ambrose
,
Pennsylvania State University

Abstract

Research on the disposition effect in real assets to date ignores the active management component of these investments. Active management notably includes decisions about follow-up investment in the form of capital expenditures, as well as dispositions. Using a real option framework, we develop testable hypotheses and provide empirical evidence for the relationships between economic fundamentals, capital expenditures, property values, and the subsequent likelihood of sale. Our results shed new light on the evidence for the disposition effect in real estate.

Acquisitions and the Opportunity Set

Jarl Kallberg
,
Washington State University
Yoshiki Shimizu
,
Washington State University

Abstract

This study analyzes a sample of 155 acquisitions by REITs of public and private targets over the period 1991 to 2015. Controlling for multiple factors that influence post-acquisition performance, we find that abnormal returns on acquisitions are highly positively correlated to the cap rate at the time of the acquisition, suggesting that positive investment opportunities in real markets lead to more successful transactions. We also show that high cap rates increase the likelihood of an acquisition. For robustness, we also test using the other measures of opportunity sets proposed in the literature. We find that higher market-to-book and Tobin's Q ratios lead to more frequent acquisitions, but with worse post-acquisition performance.
Discussant(s)
Michael Fratantoni
,
Mortgage Bankers Association
Gennaro Bernile
,
University of Miami
Jacob Sagi
,
University of North Carolina-Chapel Hill
Benjamin Scheick
,
Villanova University
JEL Classifications
  • G3 - Corporate Finance and Governance
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location