Commercial Real Estate: Acquisition and Capital Flows
Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM
- Chair: Robert Connolly, University of North Carolina
Geographically Overlapping Real Estate Assets, Liquidity Spillovers, and Liquidity Multiplier Effects
AbstractLocal 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
AbstractResearch 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
AbstractThis 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.
- G3 - Corporate Finance and Governance
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location