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Commercial Real Estate 2

Paper Session

Saturday, Jan. 5, 2019 2:30 PM - 4:30 PM

Hilton Atlanta, 215
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Moussa Diop, University of Wisconsin-Madison

Office Market Interconnectedness and Systemic Risk Exposure

Daniel Ruf
,
University of St. Gallen

Abstract

This paper empirically studies how systemic risk in the banking sector affects return co-movements among financial center office markets. We compute an aggregated measure of systemic risk in financial centers that is related to the expected capital shortfall of financial institutions. The empirical results show that office market interconnectedness arises from systemic banking risk during financial turmoil periods. Our identification strategy is based on a double counterfactual approach. We find no evidence of return co-movements during normal times and among the counterfactual retail markets. The decline in office market returns during financial turmoil is larger in financial centers compared to non-financial centers. Our findings demonstrate how correlated risk among seemingly uncorrelated assets emerges in times when risk diversification is most needed.

The Optimal Composition of Shopping Malls during the Ongoing Evolution of United States Retail

Peng Liu
,
Cornell University
Cheuk Shing Leung
,
Mcgill University
Tingyu Zhou
,
Concordia University

Abstract

We examine the tenant compositions of anchor stores non-anchor retail stores ,and specialty stores inside shopping malls during the ongoing evolution in the U.S. retail industry. We extend the existing theoretical framework to incorporate a broader definition of anchor stores of different types and to re-examine the trade-off between agglomeration and competition by locating together inside shopping centers. Our model predicts the optimal tenant composition as an equilibrium outcome through the profit maximization strategies made by both tenants and the landlord. Next, we empirically test our model with a novel dataset of a comprehensive list of tenants inside large-scale shopping centers in the US. Our model and empirical results help explain the entry and exit decisions by retailers, including both anchor stores and specialty stores, as well as valuation and investment implications for malls that have difference tenant compositions.

The Geography of Real Property Information and Investment: Firm Location, Asset Location, and Institutional Ownership

Chongyu Wang
,
University of Florida
Tingyu Zhou
,
Concordia University
David Ling
,
University of Florida

Abstract

This article first examines the extent to which the institutional ownership of a firm is related to the degree to which the firm invests in its local market, where it is presumed to have an information advantage. Second, we examine whether institutional investors tend to own a disproportionate fraction of firms headquartered in the investor’s home market. Third, we investigate whether institutional investors tend to overweight firms that have measurable economic interests and activity in the home market of the institutional investor, even if the firm is not headquartered there. Fourth, using changes in the headquarters locations of a sample of institutional investors as exogenous shocks to REITs’ exposure to the information environment of institutional investors, we examine whether investors reallocate their portfolios to firms with an economic presence in the investor’s new headquarters location. Finally, we investigate whether tilting their portfolios towards local firms increases the returns and risk of the investor’s portfolio. We find that institutional investors tilt their portfolios towards firms with high portfolio concentrations in the firm’s home MSA and toward firms that are headquartered or own properties in the investor’s home MSA. These results are robust to the use of ownership data disaggregated by type of institutional investor, to alternative classifications of investor types, and to alternative regression methodologies. Our difference-in-difference-in-difference analysis reveals that, after moving, institutional investors tend to reallocate their portfolios toward firms with economic interests in the investor’s new headquarter location. Finally, we provide evidence that titling portfolios toward firms that have economic interests in the investor’s home MSA is associated with higher risk-adjusted returns and increased diversification.

Social Learning and Local Consumption Amenities: Evidence from Yelp

Chun Kuang
,
East Carolina University
Elliot Anenberg
,
Federal Reserve Board
Edward Kung
,
University of California-Los Angeles

Abstract

Using data from Yelp, we show that consumers learn about restaurant quality from reviews, which means restaurants are more likely to go out of business when receiving poor reviews. Average restaurant quality thus becomes higher in areas with faster learning, which tend to be areas closer to the city center, and areas with younger and more educated populations. To quantify the effect of learning on equilibrium restaurant quality, we estimate a Bayesian learning model of consumer demand and restaurant exit. Simulations show that learning increases average restaurant quality by 0.25 Yelp stars in large markets and by 0.11 stars in small markets. This differential increase in restaurant quality associated with learning accounts for 0.9 percentage points of the house price difference between such areas. Our results have implications for the literature on gentrification and urban revival.
Discussant(s)
Chongyu Wang
,
University of Florida
Yichen Su
,
Stanford University
Yao-Min Chiang
,
National Taiwan University
Oren Ziv
,
Michigan State University
JEL Classifications
  • G1 - General Financial Markets
  • R0 - General