Julia Freybote

Trust in corporate real estate management outsourcing relationships

Corporate real estate management outsourcing relationships are characterised by intangible services, information asymmetries between principal and agent, bounded rationality, and imperfect contracts. In such relationships, trust may be an important complement to contracts and monitoring to reduce transaction costs. This study tests how economic, social, monitoring and corporate real estate management-specific variables affect two types of trust – calculative and relational – with data collected from US corporate real estate managers. An OLS analysis reveals that service provider expertise and efficient monitoring positively impact calculative trust. Additionally, perceived value, social interaction, communication, service provider dependency and efficient monitoring are positively associated with relational trust. The findings suggest service provider market knowledge is essential to gain a client’s trust in an outsourcing relationship. Proper handling of sensitive information, reliable communications, providing superior value and personal relationships contribute to relational trust that can lead to more stable, enduring relationships. Clients recognise that service provider dependency may contribute to their acting in a trustworthy manner. However, trust and effective monitoring are complements, not substitutes, in these relationships.

Heterogeneous Investor Sentiment and Institutional Real Estate Investments

Commercial real estate investors differ in their sentiment due to factors such as market expertise, investment strategies and expectations about future market conditions. Focusing on the office market, we investigate whether investors with a multiasset investment focus such as pension funds or insurance companies rely on the sentiment of specialized real estate investors such as public REITs or private developers/owners as source of information in their investment decision†making. Using disaggregated sentiment measures and vector autoregression (VAR) we find evidence that changes in REIT and private real estate investor sentiment lead to changes in institutional investor sentiment in the suburban office and office REIT market. Our findings suggest that institutional investors rely on the sentiment of specialized real estate investors to make real estate investment decisions. Our study contributes to the existing literature on sentiment in commercial real estate markets by emphasizing the heterogeneity of investor sentiment and introducing a disaggregated sentiment measure. We also contribute to the institutional herding literature.

Real estate sentiment as information for REIT bond pricing

Abstract For corporate bond investors, credit ratings have been found to be informationally insufficient due to their limited timeliness and accuracy. This paper investigates the information content of forward-looking commercial real estate investor sentiment for pricing decisions of US REIT bond investors. Using an unbalanced panel data-set for the post-crisis period (2010–2013) and Prais–Winsten regression correcting for contemporaneous and serial correlation, sentiment is found to have a negative effect on REIT bond yields irrespective of S&P index inclusion or credit rating. The effect of sentiment, however, is larger for REITs that are not included in S&P indices than for S&P REITs. Explanations for this finding include institutional investor and REIT characteristics.

Dispositional joint ventures as REIT financing strategy

A dispositional joint venture (DJV) represents an alternative disposal strategy used by USA real estate investment trusts (REITs), which has received limited attention in the real estate investment and finance literature. REITs form DJVs by selling a partial interest in a property to a financier, for example, a pension fund. We hypothesise that REITs pursue this financing strategy when in need of funds and faced with restricted capital market access. We investigate the motivation to form a DJV at the REIT and property level. Using multinomial logistic regression, we find that, compared to REITs with full or no disposals, DJV REITs are characterised by higher leverage, lower market-to-book values and a lower dividend payout ratio. These findings support our hypothesis that DJV forming REITs face restricted capital market access and use DJVs to obtain financing in the private equity market. Also DJV properties appear to be of a higher quality than completely sold properties, which may explain why REITs are interested in maintaining a partial interest and thus opt for a DJV instead of an outright sale.

Corporate real estate, stock market valuation and the reputational effects of eco-certification

Abstract Improving the energy efficiency of retail stores has become an important strategy for retailers. However, why do some retailers obtain Energy Star certification for their stores while others do not? We argue that retailers pursue this certification to capture reputational benefits of the Energy Star label when their stock market valuation is low. Using longitudinal data for US retailers (grocery and department stores) over the period of 2002 to 2014, we find that stock market valuation measured by Tobin’s Q explains (1) the likelihood of a retailer obtaining Energy Star certification and (2) the share of Energy Star-certified stores in a retailer’s portfolio. Operating expenses on the other hand do not appear to drive the decision to obtain Energy Star certification. Our results also suggest that the motivations of retailers to obtain LEED and Energy Star certification differ.

The impact of temporary uses on property prices: the example of food trucks

Abstract Food trucks represent a temporary use of vacant or underutilised land. They have been assumed to increase the livability, vibrancy and attractiveness of a neighbourhood. However, no previous study has investigated whether this effect is reflected in property prices within the surrounding neighbourhood. We investigate the impact of a food truck pod on the values of single-family homes nearby. Using a quasi-experimental design, transaction data from Portland, Oregon and a difference-in-difference specification of a spatial regression model, we find that food trucks actually represent a negative externality, and that proximity of a home to food trucks is penalised by homebuyers. The closer a home is to the food trucks, the lower is the sales price. Explanations for this effect include increased parking shortages and trash issues in a neighbourhood due to food truck visitors.

Understanding the contribution of curb appeal to retail real estate values

ABSTRACT The concept of curb appeal and its impact on property values has been largely neglected in the real estate literature. In the context of retail real estate, curb appeal represents the general attractiveness of a store as viewed from the sidewalk or parking lot that is expected to affect consumer patronage decisions and consequently property values. We first develop a measurement instrument for curb appeal and assess its validity using exploratory and confirmatory factor analysis. Our results suggest that curb appeal is multidimensional and consists of an atmospheric, architectural and authenticity dimension. Then, we use survey responses, transaction data and spatial regression to quantify the impact of curb appeal on sales prices. We find that the atmospheric and architectural dimensions have a significantly positive impact on sales prices. We also show that curb appeal dimensions are highly correlated with observable building features traditionally included in hedonic pricing models.

The impact of asset location on REIT merger decisions

Theories about the motivation to merge, derived from non-real estate investment trust firms, have been found insufficient to explain real estate investment trust (REIT) mergers. Additionally, previous REIT merger studies neglect asset-specific drivers of mergers. We investigate the impact of location of the partnering firm’s assets on the decision to merge, using transaction cost economic theory as theoretical framework. We employ a pair-firm approach that jointly assesses the resources of REITs and their partnering firms. We find evidence that REITs are more likely to merge if targeted assets are (1) in primary real estate markets, (2) in strategically important growth markets or (3) associated with development or management expertise in markets a REIT has substantial investments in. Our findings emphasise the importance of portfolio considerations for REIT mergers that are specific to the REIT industry.