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- Title
Rushing to Overpay: Modeling and Measuring the REIT Premium.
- Authors
Akin, S.; Lambson, Val; McQueen, Grant; Platt, Brennan; Slade, Barrett; Wood, Justin
- Abstract
We explore the questions of why Real Estate Investment Trusts (REITs) pay more for real estate than non-REIT buyers and by how much. First, we develop a search model where REITs optimally pay more for property because (1) they are willing, due to cost of capital advantages and, (2) they are occasionally rushed, due to external regulatory time constraints and internal incentives to deploy capital quickly. Second, using commercial real estate transactions, we find that the extant hedonic pricing models contain an unobserved explanatory variables bias leading to inflated estimates of the REIT premium. Third, using a repeat-sales methodology that controls for unobserved property characteristics, we derive more plausible estimates of the REIT premium. Consistent with our model, we also find the REIT-buyer premium depends on the size of the REIT advantage, the rush to deploy, and the relative presence of REITs in the market.
- Subjects
OVERPAYMENT; REAL estate investment trusts; CAPITAL costs; HOME prices; PURCHASING agents; ESTIMATES; REAL property; FINANCE
- Publication
Journal of Real Estate Finance & Economics, 2013, Vol 47, Issue 3, p506
- ISSN
0895-5638
- Publication type
Article
- DOI
10.1007/s11146-012-9372-1