Tall commercial buildings dominate city skylines. Nevertheless, despite decades of research on commercial real estate and horizontal patterns of urban development, vertical patterns have been largely ...ignored. We document that high productivity companies locate higher up, with less productive offices lower down and retail at ground level. These patterns reflect tradeoffs between street access and vertical amenities. Vertical rent gradients are non-monotonic, independent of nearby employment, and large. Doubling zipcode employment is associated with a 10.7% increase in rent, consistent with the presence of agglomeration economies. Moving up one floor has the same effect on rent as adding roughly 3,500 workers to a zipcode.
We use real estate firms to examine how asset liquidation values influence a firm's financing choice, because the productivity and quality of each asset is observable and potential measures of an ...asset's liquidation value are easier to ascertain ex ante. We show that compared to firms that issue equity, firms that issue debt have higher asset quality. The effect of their expected asset liquidation value is significant, even after we control for other factors that influence financing decisions. For firms whose assets' quality is not easily observable, we find that firms' financing choices depend heavily on conditions in the overall real estate market.
Asset management and investment banking Berzins, Janis; Liu, Crocker H.; Trzcinka, Charles
Journal of financial economics,
10/2013, Letnik:
110, Številka:
1
Journal Article
Recenzirano
Odprti dostop
We find evidence that conflicts of interest are pervasive in the asset management business owned by investment banks. Using data from 1990 to 2008, we compare the alphas of mutual funds, hedge funds, ...and institutional funds operated by investment banks and non-bank conglomerates. We find that, while no difference exists in performance by fund type, being owned by an investment bank reduces alphas by 46 basis points per year in our baseline model. Making lead loans increases alphas, but the dispersion of fees across portfolios decreases alphas. The economic loss is $4.9 billion per year.
We provide a new framework for using text as data in empirical models. The framework identifies salient information in unstructured text that can control for multidimensional heterogeneity among ...assets. We demonstrate the efficacy of the framework by reexamining principal-agent problems in residential real estate markets. We show that the agent-owned premiums reported in the extant literature dissipate when the salient textual information is included. The results suggest the previously reported agent-owned premiums suffer from an omitted variable bias, which prior studies incorrectly ascribed to market distortions associated with asymmetric information.
We provide new evidence of the demand for better schools as manifested in bidding wars and changes to the built environment. Using repeat sales before and after a redistricting, we exploit shocks to ...school quality arising from the continuous, unexpected redistricting of school attendance boundaries in Atlanta. We find that houses redistricted to higher (lower) quality schools are more (less) likely to be involved in a market‐driven bidding war. Similarly, undeveloped, redistricted parcels that receive a positive (negative) school quality shock are more (less) likely to be developed. School quality shocks also have a causal effect on house prices and time‐on‐market.
Although there is broad recognition that cities differ in their tendency to experience house price bubbles, most studies assume away any possibility of within-city heterogeneity in response to a ...bubble. We develop a model that suggests that this assumption may be appropriate when markets are rising but can be far from reality on the bust side of a bubble. During a housing boom, new construction and related supply adjustments by developers ensure stable relative prices between low- and high-quality segments of the housing market. On the bust side of a bubble, however, reduced housing starts allow demand-side forces and mortgage default to create pressure for relative prices to diverge across market segments. Absent a change in technology, as markets recover and new construction rebounds, relative prices should revert back to pre-crash levels. Evidence based on 2000–2013 single-family home sales in Phoenix, Arizona supports this modeling framework. Additional evidence also suggests that high rates of mortgage default contributed to divergence in relative prices when markets crashed.
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.
We investigate the comovement among Case‐Shiller Home Price Indices for 14 metropolitan areas between 1992 and 2008. We define the portion of this comovement deemed as fundamental (excessive) as the ...covariation that can (cannot) be attributed to common fundamental factors directly influencing real estate prices. We find that i) comovement among these markets considerably increased over the sample period, especially in the late 1990s; ii) this increase is mostly attributable to underlying systematic real and financial factors, consistent with a greater fundamental integration of those markets; and iii) excess comovement is a less important factor than commonly believed. We discuss the implications of these results for the evolution of U.S. real estate prices over the last two decades and the ongoing credit crisis.
This article analyzes auctions that can feature two bidding rounds for the sale of a single good. In the first round, the seller, after analyzing the received bids, may elect to have k bidders rebid. ...The highest bidder in the second round then acquires the asset at the highest bid price. We use a sample of 67 properties that sold through this auction process. The 40 hotels in this sample are matched to a control group of 157 hotel properties that were sold in the conventional manner in order to develop a hedonic model for “conventional” sale prices. Using this model, we find that the double round auction mechanism increases the seller's expected revenue significantly: Specifically, in our sample, we estimate that the expected value of a double round auction bid is 8.4% higher than the estimated price if the property were sold using traditional methods. In addition, we show that the average bid is not significantly different from the estimated sale price. We further find (controlling for property characteristics) that the average bid increases by 3.7% from the first to the second round.
This article tests the ability of traditional capital structure theories to explain the issuance decisions of real estate investment trusts (REITs). For issuances made between 1997 and 2006, we find ...strong support for the market timing theory of capital structure. Controlling for past returns and growth, a REIT is more likely to issue equity when its price‐to–net asset value ratio is high. This suggests that REITs issue equity in public markets when the cost of equity capital is lower in the public market than in the private market. Consistent with traditional market timing, REITs are more likely to issue equity after experiencing large price increases. We also find some support for REITs following the trade‐off theory of capital structure. REITs are less likely to issue debt when proxies for expected bankruptcy costs are high.
PDF
