Property Type, Size, and REIT Value

This study documents the wide deviation of securitized real estate assets in equity REITs from the value of the underlying commercial properties. A procedure for estimating the net asset value of REITs is developed and the estimates are used to investigate the sources of premiums/discounts from net asset value in a large sample of equity REITs. To avoid measurement error bias, two-way analysis of variance is used to test for differences among size and property-type categories. The results indicate that retail REITs trade at significant premiums relative to the average REIT while warehouse/industrial REITs trade at discounts and small REITs trade at significant discounts while large REITs trade at premiums. The discounts and premiums from net asset value do not translate into higher cash flow yields.

Predictability in Equilibrium: The Price Dynamics of Real Estate Investment Trusts

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/72684/1/j.1540-6229.2007.00200.x.pd

Determinants of Real House Price Dynamics

We explore the dynamics of real house prices by estimating serial correlation and mean reversion coefficients from a panel data set of 62 metro areas from 1979-1995. The serial correlation and reversion parameters are then shown to vary cross sectionally with city size, real income growth, population growth, and real construction costs. Serial correlation is higher in metro areas with higher real income, population growth and real construction costs. Mean reversion is greater in large metro areas and faster-growing cities with lower construction costs. Empirically, substantial overshooting of prices can occur in high real construction cost areas, which have high serial correlation and low mean reversion, such as the coastal cities of Boston, New York, San Francisco, Los Angeles and San Diego.

Comments on “race, redlining, and residential mortgage loan performance”

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47806/1/11146_2005_Article_BF01099280.pd

Introduction

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47782/1/11146_2004_Article_BF00173118.pd

The Value of Liquidity

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/72848/1/1080-8620.00026.pd

The value of risk in real estate markets

In this article we test the urban asset pricing model of Capozza and Sick (1988) and focus on the empirical dimensions of the effects of risk on urban land prices. The effects of systematic and unsystematic risk are distinguished in the model which incorporates the value of the option to convert land to urban uses into the pricing of urban real estate. We find the value of systematic risk in our Canadian urban areas to be negative and highly statistically significant. We find that approximately 2.5 percent of the value of houses in our sample arises from systematic risk. In our sample, unsystematic risk is a larger proportion of total risk than systematic risk. Therefore, most of the effect of total risk may be ascribed to unsystematic risk. The effect of total risk on land prices is illustrated through the irreversibility premia estimates. These premia vary greatly in size and statistical significance. Thus, the effect of unsystematic risk is highly city specific. In the two regions where the irreversibility premia are statistically significant, it accounts for 22 percent and 53 percent of the average housing price; thus, unsystematic risk can be a very important determinant of housing prices.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47767/1/11146_2004_Article_BF00216587.pd

Valuing long-term leases: The option to redevelop

Long-term leases on property are popular in many jurisdictions, both with private vendors and with local governments who want to retain future control over land use. A puzzling issue for vendors and purchasers has been how to value these leased properties relative to fee-simple properties. Simple present-value models suggest that there should be little difference between the price of fee-simple land and the price of long-term leases. Transaction prices in Canada on 80-year to 100-year residential leases, however, are 20 percent to 40 percent less than comparable fee-simple properties. We outline a financial model for valuing leased properties. The value of the option to upgrade or redevelop is considered. We show that the large part of the discount of leased properties from fee-simple properties can be explained by this option to redevelop.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47799/1/11146_2004_Article_BF00173125.pd

Debt, Agency, and Management Contracts in REITs: The External Advisor Puzzle

This study investigates why externally advised real estate investment trusts (REITs) underperform their internally managed counterparts. Consistent with previous studies, we find that REITs managed by external advisors underperform internally managed ones by over 7 percent per year. Property-level cash-flow yields are similar between the two managerial forms, but corporate-level expenses and especially interest expenses are responsible for lower levels of cash available to shareholders in externally advised REITs. We document that the higher-interest expenses are due to both higher levels of debt and to higher debt yields for externally advised REITs. We posit that compensating managers based on either assets under management or on property-level cash flows creates incentives for managers to increase the asset base by issuing debt even if the interest costs are unfavorable.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47758/1/11146_2004_Article_254942.pd

Appraisal, Agency and Atypicality: Evidence from Manufactured Homes

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/73056/1/j.1540-6229.2005.00128.x.pd