Rushing to Overpay: The REIT Premium Revisited

Serife Akin, Val Lambson, Grant McQueen, Brennan Platt, Barrett Slade () and Justin Wood
Additional contact information
Grant McQueen: Marriott School, Brigham Young University
Barrett Slade: Marriott School, Brigham Young University
Justin Wood: Marriott School, Brigham Young University

No 2011-1, Working Papers from University of Miami, Department of Economics

Abstract: We explore the questions of whether and why Real Estate Investment Trusts (REITs) pay more for real estate than non-REIT buyers, consequently breaking the law of one price. We develop a model where REITs optimally pay more for property because (1) they are able, due to capital access advantages and, (2) are occasionally compelled, due to regulatory time constraints on the deployment of capital. We show that the typically large (20 to 60 percent) and statistically significant (p-values less than 0.01) REIT-buyer premiums found in standard empirical hedonic pricing models are biased due to unobserved explanatory variables. Using a repeat-transaction methodology that controls for unobserved independent variables, we find the REIT-buyer premium to be about 5 percent. Furthermore, we show that REITs¿ ability (as measured by access to capital markets) and regulator compulsion (as measured by capital deployment deadlines) are related to the price premium.

Keywords: Real Estate Investment Trusts (REITs); commercial properties; hedonic price analysis; repeat transactions; market efficiency; law of one price; price premium (search for similar items in EconPapers)
JEL-codes: D83 G14 R3 R33 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2011
New Economics Papers: this item is included in nep-reg and nep-ure
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Forthcoming: working

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