Executive Compensation in EREITs: EREIT Size is But One Determinant

Prior research of senior executive compensation in real estate investment trusts (REITs) has found REIT size as the sole statistically significant determinant of compensation. This research finds that size is only one of several determinants of equity REITs (EREIT) senior executive compensation. In addition to size as measured by EREIT market value, the designation of the EREIT as a retail EREIT, the percentage of stock owned by the senior executive, the dollar amount of dividends paid to the senior executive and the number of years since an EREIT’s initial public offering were found to be significant factors impacting senior executive compensation. The results also contrast with the general executive compensation literature that shows proxies for size as the primary determinants of executive compensation. This research indicates the need for industry specific compensation models to account for variation in executive compensation.

Apartment Security: A Note on Gated Access and Rental Rates

The effect of gated access restrictions on garden apartment rents is empirically evaluated. Garden apartment rents are positively related to the presence of gated access constraints, although the combination of in-unit alarms with gated access is rent neutral. One-bedroom and two-bedroom units garner higher rents with the presence of gated access constraints. The research extends prior research on high-rise units indicating that 24-hour security positively impacts occupancy and gross rental income. Given that the study uses data from only one market, additional research for other cities and regions is warranted.

The Relationship between Foreclosure Status and Apartment Price

Empirical studies disclose that foreclosed residential properties sell at a discount from the expected market price for non-foreclosed residences. This investigation shows that prior findings on residential properties can be extended to include income-producing properties. In addition, it employs market rent to control for variation in property quality. An analysis of apartment sales in Phoenix, Arizona, demonstrates that foreclosure-status apartments sell at a 22% discount when compared to non-foreclosure apartment sales. The rationale for accepting discounted process may be atypical seller motivations such as a need to satisfy regulatory capital requirements, to mitigate negative stock price effects, or to protect credit ratings.

Micro-Market Determinants of Neighborhood Center Rental Rate

This investigation expands the limited empirical research on retail rental rates by investigating the determinants of neighborhood shopping center rents. Evidence supports primary trade area and property specific characteristics as the primary determinants of neighborhood center vacancy and rental rates. A positive aggregation effect created by higher order shopping opportunities is also found. Community centers and malls generate positive marginal effects on neighborhood center rental rates. However, the marginal effects diminish greatly after two-tenths mile for community centers and one-half mile for malls. Micro-market factors are important determinants of rental rates and by implication property performance.

Credit Line Availability and Utilization in REITs

Analysis of REIT credit line availability and use under normal conditions and during the recent financial crisis are provided. Descriptive statistics indicate REIT credit lines represent an important component of capital structure, credit line availability and utilization have increased substantially over the sample period, and REITs maintain precautionary liquidity via credit lines rather than holding cash. Multivariate results indicate that credit line availability is directly associated with cash flow uncertainty, dividend distributions, acquisitions, and capital market access and is inversely linked to the market-to-book ratio. Credit line use is unrelated to cash flow volatility and dividends, but is correlated with operating cash flow, acquisitions, and capital market access. Unlike with non-REITs, when setting credit limits lenders focus on dividends and not just operating cash flow. Despite finding that line availability is influenced by dividend payments, REITs do not systematically use lines to pay dividends implying that dividends are paid from operating cash flows.

Equity REIT Property Acquisitions: Do Apartment REITs Pay a Premium?

Negotiation theory and implied agency costs provide the foundation for the research hypothesis that equity real estate investment trusts (EREITs) may have paid premiums when making real property acquisitions during the 1990s REIT boom. Using a simultaneous equations model and data from the Atlanta, Phoenix and Seattle apartment markets, this research finds that apartment EREITs have paid above market prices for property acquisitions. In Atlanta, a 26.1% premium was evident; in Phoenix, a 27.5% premium was evident; while in Seattle, a premium was not evident. At the property level, the returns to EREITs and private sector or non-securitized investors may differ substantially.

An Empirical Analysis of Community Center Rents

This article is the winner of the Retail Real Estate manuscript prize (sponsored by the International Council of Shopping Centers) presented at the 2001 American Real Estate Society Annual Meeting. This study empirically models the determinants of community center rent. It employs a two-stage model that estimates center vacancy in the first stage and then includes predicted vacancy in a second stage demand model investigating endogenous and exogenous determinants of community center rent. The data includes information on maximum and minimum square foot rent for 118 community centers in Atlanta, Georgia. Maximum community center rent is highly correlated with a center’s predicted vacancy rate and location within the Atlanta area. Additionally, rent at both maximum and minimum levels is influenced by trade area purchasing power, property age and to a lesser extent by proximity to a regional mall, center design and neighborhood factors.

Brokerage Intermediation in the Commercial Property Market

This study is one of the first to investigate brokerage intermediation effects in the income producing commercial property market. Employing multifamily sales data from the Atlanta and Phoenix markets under alternative brokerage specifications, little evidence to support the existence of systematic, differential transaction pricing outcomes due to the presence of brokers is found. The results suggest that the existence of brokerage intermediation effects is likely minimal in commercial markets that are relatively transparent, that have participants who are knowledgeable, and where value and price are typically determined based on a property’s income generating capacity.

Institutional-Grade Properties: Performance and Ownership

Quality commercial properties differ in operating performance not only on physical characteristics but in type of ownership, management, and control. For 1996?001 data on Atlanta apartments, a primary market for multiple types of investors, there is varying operating performance by ownership. Larger-scale owners and local property managers earn higher effective rents.

Financial and Housing Wealth, Expenditures and the Dividend to Ownership

For a household, home ownership provides necessary shelter, potential investment returns associated with property appreciation and a hedge against increased housing related cash outlays. In addition to potential appreciation, individual households benefit over time from a housing dividend defined as the difference between the market rent for the individual household’s housing unit and the household’s actual house ownership costs. The purchase of a house can substantially fix a household’s recurring housing related expenditures and generates a hedge (implied housing dividend) that increases with ownership tenure. This expenditure hedge (dividend) to home ownership is documented using pooled, cross-year samples from the Consumer Expenditure Survey (CEX). The housing dividend delivers a non-trivial effect on household non-housing expenditures after controlling for housing value, housing equity, financial assets and income