The Impact of Property Clustering on REIT Operational Efficiency and Firm Value

Daniel Huerta () and Christopher Mothorpe ()
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Daniel Huerta: Florida Gulf Coast University
Christopher Mothorpe: College of Charleston

The Journal of Real Estate Finance and Economics, 2025, vol. 71, issue 3, No 5, 476-509

Abstract: Abstract Conditioned geographical clustering is the strategy of grouping portions of a REIT’s property portfolio within a contiguous region to exploit economies of scale through spatial proximity. This paper examines the impact of conditioned geographical clustering on REIT operational efficiency and value. Our results suggest REITs create value by employing a strategy of property clustering and that operational efficiency is the primary channel through which increases in value are achieved. In addition, results suggest conditioned geographic clustering mitigates the REIT geographical diversification discount. Our findings support an optimal degree of property clustering within the 5th to 35th percentiles of the sample distribution and suggest the optimal cluster size has a radius between 50 and 75 miles.

Keywords: REIT property clustering; REIT efficiency; REIT economies of scale; REIT value; REIT conditioned geographical clustering (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11146-023-09973-w

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