Piet M. A. Eichholtz

The Economics of Green Building

We analyze the economics of green building, finding that recent increases in the supply of green buildings and the volatility in property markets have not affected the returns to green buildings. We then analyze a large cross-section of office buildings, demonstrating that economic returns to energy-efficient buildings are substantial. Finally, we relate the economic premiums for green buildings to their relative efficiency in energy usethe attributes rated for thermal efficiency, as well as sustainability, contribute to premiums in rents and asset values. Among green buildings, increased energy efficiency is fully capitalized into rents and asset values.

Continental factors in international real estate returns

This paper examines the extent to which real estate returns are driven by continental factors. This subject is relevant for determining the country allocation of international real estate portfolios. If returns are driven by a continental factor, investors should look for diversification opportunities outside their own continent. This paper finds strong continental factors in North America and especially in the United States. For the Asia–Pacific region, real estate returns are not driven by a continental factor. The results suggest that, for European, North American and Asia—Pacific real estate portfolio managers, the Asia—Pacific region provides attractive international diversification opportunities.

Corporate Governance and Performance: The REIT Effect

Real estate investment trusts (REITs) offer a natural experiment in corporate governance due to the fact that they leave little free cash flow for management, which reduces agency problems. We exploit a unique and leading corporate governance database to test whether corporate governance matters for the performance of U.S. REITs. We document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies and a control sample of firms with high corporate real estate ratios, we find a strong and significantly positive relation between our governance index and several performance variables, indicating that the partial lack of a relation between governance and performance in the real estate sector might be explained by a REIT effect.

Property shares, appraisals and the stock market: An international perspective

A severe problem facing both real estate researchers and investors is the lack of reliable real estate returns data. Property shares, the shares of companies which invest in property and manage a portfolio of real estate, have been proposed as indicators of real estate performance. Property shares exist in many countries, are publicly traded, and their returns are not inherently biased. For three countries, we investigate the relationships with common stock and appraisal-based returns which property share returns exhibit. Our results indicate that property shares are closely related to the stock markets on which they trade, thereby confirming previous findings for the United States. However, property share returns also predict appraisal-based indices.

Capital Structure Theory: Evidence from European Property Companies' Capital Offerings

This study examines the stock price reactions on announcements of both equity and debt offerings by European property companies. The unique setting in which corporate tax rates vary between different countries enables us to test established theories in the field of capital structure. In accordance with theory, we find a negative price reaction on equity offering announcements, which is less severe for low-tax countries and positive price reactions on the announcements of debt offerings. Besides tax arguments, we also test alternative explanations by analyzing variations in stock reactions based on differences in the relative size of the issue, the pre-offer leverage, the underlying property types, and operational performance. The results show that corporate taxation, issue size, and operational performance are significant explanatory factors in the negative price reactions. Copyright 2001 by the American Real Estate and Urban Economics Association.

Global property investment and the costs of international diversification

There is a trade-off between the costs and benefits of international diversification. This paper shows that the costs for property investors can be reduced substantially through investments in public real estate companies, which concentrate on their local, domestic market. We compare the performance of 18 international operating property companies over the sample period 1984 through 1995 with the performance of property companies operating on their domestic market. We find that the international companies underperform the domestic companies. We also find this difference is not due to factors such as transaction costs, leverage, and currency.

Property, common stock, and property shares

In this article the authors examine the relationship between private property, the securitized property share market, and the common stock market in the United States and the United Kingdom during the period 1986 to 2002. They find that the correlations between property share returns and common stock returns are show a similar decreasing trend for both countries, indicating increased mixed-asset diversification potential for property shares. After applying standard unsmoothing and hedging techniques, in order to abstract from the underlying market structures, the authors discover increased similarities between the securitized and unsecuritized property performances in both countries. Combining the performance characteristics of both property investment vehicles results in new insights regarding the position of real estate in mixed-asset portfolios.

Why Do Companies Rent Green? Real Property and Corporate Social Responsibility

This paper provides the first systematic analysis of the choice by organizations to occupy green office space. We develop a framework of ecological responsiveness, and we formulate five propositions to explain why specific firms and industries may be more likely to lease green space. We test these propositions by analyzing the decisions of more than 11,000 tenants to choose office space in green buildings or in otherwise comparable non-green buildings located nearby. We find that corporations in the oil and banking industries, as well as government-related and non-profit organizations, are among the most prominent green tenants. After appropriately controlling for building quality and for location within one quarter mile, our empirical analysis shows that firms in mining and construction and organizations in public administration are relatively more likely to lease green rather than conventional office space. Furthermore, organizations employing higher levels of human capital (as measured by skills and compensation) are more likely to lease green office space.

The Liquidity of Property Shares: An International Comparison

This article investigates the magnitude and determinates of share liquidity over the 1990–2007 period in the worlds four largest securitized real estate markets: the United States, the United Kingdom, Continental Europe and Australia. We document a significant and consistent role for market capitalization, nonretail share ownership and dividend yield as drivers of liquidity across markets. We also document significant differences in liquidity across countries and between property and nonproperty companies. Also striking is the lack of correlation among our three measures of liquidity across property firms and time. This supports the notion that share price liquidity is multifaceted and therefore reliance on any one measure of liquidity in empirical work may produce misleading conclusions. Although we find some evidence of a connection between liquidity and firm value, it is less conclusive than prior studies.

Initial Public Offerings Evidence from the British, French and Swedish Property Share Markets

This paper investigates the underpricing and long-run performance of initial public offerings (IPOs), using a unique sample consisting of 54 British, French and Swedish property companies, which became publicly listed during the period 1984–1999. Similar to common stock IPOs, the European property share IPOs in our sample outperformed the benchmark on the first day of trading, on average with 2.55 percent. However, these property share IPOs tend to underperform their benchmark over the twelve-month period subsequent to the initial offering. We also examine explanatory factors such as issue size, the degree of debt financing, ex-ante uncertainty, and the underlying property types of the companies involved. The results are in line with those previously found for common stocks.