Did ownership characteristics bias portfolio appraisals during the late 2000s downturn? A natural experiment from the UK commercial real estate market

Neil Crosby, Colin Lizieri, Pat McAllister and Yarim Shamsan

ERES from European Real Estate Society (ERES)

Abstract: This paper extends the debate on the effects of client influence on external valuations. We augment prior research based on interview or experimental evidence by analysing the UK real estate downturn starting in 2007. This period forms a natural experiment of valuation influence in that different groups of investors had divergent interests in the outcome of portfolio valuations. In particular, open ended funds redeeming at NAV had an incentive to drive valuations downwards, while, by contrast, closed end funds with high leverage had an incentive to boost valuations. If such divergent pressures did affect supposedly independent valuations, this might be observable in biases in the valuation performance of real estate held by different fund types. Prior research (Crosby et al., 2010) addressed this issue using aggregated data for fund types from IPD. However, the level of aggregation in that paper opens the possibility that the biases observed result from composition effects. In contrast, this paper focuses on individual asset level data from IPD. Hedonic analyses of the behaviour of individual properties are conducted with ownership type variables augmenting property characteristic and time variables. We test whether there are significant differences in the behaviour of assets held by different types of investors. The findings shed light on the cyclical dynamics of commercial real estate markets in cyclical downturns and the information content of appraisal based indices.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2012-01-01
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