Moussa Diop

The Use of Eminent Domain for Economic Development in the Era of Kelo

The Supreme Court decision in Kelo v. New London (2005) authorized the use of eminent domain for economic redevelopment provided that there are sufficient spillover benefits to the public. This article examines the economic basis for this decision and tests the conclusions using cross-state data on “development takings” over the period 1998 to 2002. It also examines the political responses by states to limit such takings in the aftermath of Kelo. The results are consistent with the economic justification for eminent domain as a means of overcoming the holdout problem.

Spillover Effects of Subprime Mortgage Originations: The Effects of Single-Family Mortgage Credit Expansion on the Multifamily Rental Market

The dramatic expansion in subprime mortgage credit fueled a remarkable boom and bust in the US housing market and created a global financial crisis. Even though considerable research examines the housing and mortgage markets during the previous decade, how the expansion in mortgage credit affected the rental market remains unclear; and yet, over 30 percent of all U.S. households reside in the rental market. Our study fills this gap by showing how the multifamily rental market was adversely affected by the development of subprime lending in the single-family market before the advent of the 2007/2008 subprime induced financial crisis. We provide evidence for a fundamentals based linkage by which the effect of an innovation in one market (i.e, the growth in subprime mortgage originations) is propagated through to another market. Using a large database of residential rental lease payment records, our results confirm that the expansion in subprime lending corresponds with an overall decline in the quality of rental payments. Finally, we present evidence showing that the financial performance of multifamily rental properties reflected the increase in rental lease defaults.

Product Market Competition and Corporate Real Estate Investment under Demand Uncertainty: Product Market Competition and Corporate Real Estate Investment

This article theoretically and empirically analyzes the interactions among corporate real estate investment, product market competition and firm risk. In our model, firms own strategic real estate or lease generic real estate. Our model predicts that strategic real estate ownership is positively correlated with industry concentration and negatively related to demand uncertainty. Also, firm risk is higher for firms with more strategic real estate operating in a more concentrated market. This prediction arises because smaller investments induce greater market competition, which effectively eliminates the right tail of the firms profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.

Product Market Competition and Corporate Real Estate Investment under Demand Uncertainty

This paper theoretically and empirically analyzes the interactions among corporate real estate investment, product market competition, and firm risk. In our model, firms own strategic real estate or lease generic real estate. Our model predicts that strategic real estate ownership is positively correlated with industry concentration and negatively related to demand uncertainty. Also, firm risk is higher for firms with more strategic real estate operating in a more concentrated market. This prediction arises because smaller investments induce greater market competition, which effectively eliminates the right tail of the firms profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.

Information Asymmetry, Regulations, and Equilibrium Outcomes: Theory and Evidence from the Housing Rental Market

Housing affordability in the United States is a perennial concern. We explore the role of information asymmetry and regulations on equilibrium outcomes in rental markets to show that while landlords price the cost of regulations into rent, they also invest in tenant screening to alleviate information asymmetry, thus restricting access to rental housing. We are the first to document this additional tenant screening in response to regulations.

How Do Firms Finance Nonprimary Market Investments? Evidence from REITs: How Do Firms Finance Non-Primary Market Investments?

This study explores the impact of investment characteristics, mainly investment location relative to the firms primary market, on financing choices by real estate investment trusts (REITs). Using a large sample of commercial property acquisitions, we show that REITs are 4–8% less likely to use secured (mortgage) debt when acquiring properties in their primary markets than elsewhere. The documented evidence supports a demand‐side story for the relation between investment characteristics and financing. Moreover, the evidence is consistent with the hypothesis that REITs avoid mortgage financing in their primary markets to preserve operational flexibility in those markets.

Information Asymmetry, Regulations and Equilibrium Outcomes: Theory and Evidence from the Housing Rental Market: Information Asymmetry, Regulation and Rental Market Outcomes

Following the financial crisis, rental markets in the U.S. remain tight. It is unclear, however, whether the shortfall in rental housing supply is transitory or structural. We explore the role of information asymmetry and regulations on equilibrium outcomes in rental markets in order to document the role of government regulations in reducing rental supply. We show that while landlords price the cost of regulations into rent, they also invest in tenant screening as regulation costs soar, restricting access to privately-supplied rental housing. Although the additional tenant screening is understandable, its magnitude is somewhat surprising.

Real Estate Investments, Product Market Competition and Stock Returns: Real Estate Investments, Product Market Competition and Stock Returns

By limiting operating flexibility, real estate investments are found to increase firm risk, thus expected returns. This study introduces product market competition as a critical determinant of the relation between real estate investments and stock returns. As part of capacity strategies, these investments are generally associated with increased market power and lower cash flow volatility in oligopolistic industries. I present a simple model of oligopolistic competition showing a negative relation between real estate holdings and firm beta, and empirically confirm this prediction. Controlling for product market competition enhances identification of the endogenous relation between real estate investments and stock returns.

Contact High: The External Effects of Retail Marijuana Establishments on House Prices

Using publicly available data from the city of Denver and the state of Colorado, this study examines the effects of retail conversions (conversions from medical marijuana to retail marijuana stores) on neighboring house values in Denver, Colorado for the years 2013 and 2014. The time period was chosen to reflect a time before (2013) and after (2014) retail marijuana sales became legal in Colorado. Using a difference-in-differences approach, we compare houses that were in close proximity to a conversion (within 0.1 miles) to those that are farther away from a conversion. We find that after the law went into effect, single family residences close to a retail conversion increased in value by approximately 9% relative to houses that are located slightly farther away. We perform a battery of robustness checks and falsification tests to provide additional support for this finding. To our knowledge this is the first study to examine at a micro-level the highly localized effect of retail marijuana establishments on house prices and hope that it can contribute to the debate on retail marijuana laws.

How Do Firms Finance Non-Primary Market Investments? Evidence from REITs

This study explores the impact of investment characteristics, mainly investment location relative to the firms primary market, on financing choices by real estate investment trusts (REITs). Using a large sample of commercial property acquisitions, we show that REITs are 4–8% less likely to use secured (mortgage) debt when acquiring properties in their primary markets than elsewhere. The documented evidence supports a demand†side story for the relation between investment characteristics and financing. Moreover, the evidence is consistent with the hypothesis that REITs avoid mortgage financing in their primary markets to preserve operational flexibility in those markets.