1932

Abstract

We survey the properties of commercial real estate (CRE) as an asset class. We first illustrate its importance relative to the US economy and to other asset classes. We then discuss CRE ownership patterns over time. While the academic literature has emphasized Real Estate Investment Trusts, about two-thirds of the value of CRE is owner occupied. We next study the return properties of CRE indices and discuss what is known about the returns to individual properties. We briefly discuss CRE debt before turning to property derivatives. Finally, we consider how including CRE in a portfolio affects the portfolio's performance.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-financial-110118-123121
2019-12-26
2024-06-23
Loading full text...

Full text loading...

/deliver/fulltext/financial/11/1/annurev-financial-110118-123121.html?itemId=/content/journals/10.1146/annurev-financial-110118-123121&mimeType=html&fmt=ahah

Literature Cited

  1. Alcock J, Baum A, Colley N, Steiner E 2013. The role of financial leverage in the performance of private equity real estate funds. J. Priv. Equity 17:80–91
    [Google Scholar]
  2. Ambrose BW. 1990. Corporate real estate's impact on the takeover market. J. Real Estate Finance Econ. 3:307–22
    [Google Scholar]
  3. Ambrose BW, Diop M, Yoshida J 2017. Product market competition and corporate real estate investment under demand uncertainty. Real Estate Econ 45:521–90
    [Google Scholar]
  4. Anderson R, Clayton J, MacKinnon G, Sharma R 2005. REIT returns and pricing: the small cap value stock factor. J. Prop. Res. 22:267–86
    [Google Scholar]
  5. Andonov A, Rauh J. 2018. The return expectations of institutional investors Tech. Rep., Stanford Univ Palo Alto, CA:
    [Google Scholar]
  6. Benmelech E, Garmaise MJ, Moskowitz TJ 2005. Do liquidation values affect financial contracts? Evidence from commercial loan contracts and zoning regulation. Q. J. Econ. 120:1121–54
    [Google Scholar]
  7. Black L, Krainer J, Nichols J 2017. From origination to renegotiation: a comparison of portfolio and securitized commercial real estate loans. J. Real Estate Finance Econ. 55:1–31
    [Google Scholar]
  8. Boudry W, Coulson N, Kallberg J, Liu C 2012. On the hybrid nature of REITs. J. Real Estate Finance Econ. 44:230–49
    [Google Scholar]
  9. Campbell JY, Ammer J. 1993. What moves the stock and bond markets? A variance decomposition for long-term asset returns. J. Finance 48:3–37
    [Google Scholar]
  10. Campbell JY, Shiller RJ. 1988. The dividend-price ratio and expectations of future dividends and discount factors. Rev. Financ. Stud. 1:195–228
    [Google Scholar]
  11. Campello M, Giambona E. 2013. Real assets and capital structure. J. Financ. Quant. Anal. 48:1333–70
    [Google Scholar]
  12. Cannon SE, Cole RA. 2011. How accurate are commercial real estate appraisals? Evidence from 25 years of NCREIF sales data. J. Portf. Manag. 37:68–88
    [Google Scholar]
  13. Chaney T, Sraer D, Thesmar D 2012. The collateral channel: how real estate shocks affect corporate investment. Am. Econ. Rev. 102:2381–409
    [Google Scholar]
  14. Cvijanović D. 2014. Real estate prices and firm capital structure. Rev. Financ. Stud. 27:2690–735
    [Google Scholar]
  15. Dierker M, Quan D, Torous W 2005. Valuing the defeasance option in securitized commercial mortgages. Real Estate Econ 33:663–80
    [Google Scholar]
  16. Duffie D, Gârleanu N, Pedersen LH 2007. Valuation in over-the-counter markets. Rev. Financ. Stud. 20:1865–900
    [Google Scholar]
  17. Firstenberg PM, Ross SA, Zisler RC 1988. Real estate: the whole story. J. Portf. Manag. 14:22–34
    [Google Scholar]
  18. Fisher J, Gatzlaff D, Geltner D, Haurin D 2003. Controlling for the impact of variable liquidity in commercial real estate price indices. Real Estate Econ 31:269–303
    [Google Scholar]
  19. Frazzini A, Pedersen L. 2014. Betting against beta. J. Financ. Econ. 111:1–25
    [Google Scholar]
  20. Gan J. 2007. Collateral, debt capacity, and corporate investment: evidence from a natural experiment. J. Financ. Econ. 85:709–34
    [Google Scholar]
  21. Ghent A, Valkanov R. 2016. Comparing securitized and balance sheet loans: Size matters. Manag. Sci. 62:2784–803
    [Google Scholar]
  22. Ghent AC. 2019. What's wrong with Pittsburgh? Delegated investors and liquidity concentration Tech. Rep., Univ. N.C. Chapel Hill:
    [Google Scholar]
  23. Ghent AC, Owyang MT. 2010. Is housing the business cycle? Evidence from US cities. J. Urban Econ. 67:336–51
    [Google Scholar]
  24. Ghysels E, Plazzi A, Valkanov R, Torous W 2013. Forecasting real estate prices. In Handbook of Economic Forecasting, Vol. 2A G Elliott, A Timmermann 509–80 Amsterdam: Elsevier
    [Google Scholar]
  25. Gilchrist S, Zakrajšek E. 2012. Credit spreads and business cycle fluctuations. Am. Econ. Rev. 102:1692–720
    [Google Scholar]
  26. Gyourko J, Keim D. 1992. What does the stock market tell us about real estate returns. J. Am. Real Estate Urban Econ. Assoc. 20:457–85
    [Google Scholar]
  27. Hite G, Owers J, Rogers R 1984. The separation of real estate operations by spin-off. J. Am. Real Estate Urban Econ. Assoc. 12:318–32
    [Google Scholar]
  28. Howe J, Shilling J. 1988. Capital structure theory and REIT security offerings. J. Finance 43:983–93
    [Google Scholar]
  29. Leamer EE. 2007. Housing is the business cycle Paper presented at Federal Reserve Bank of Kansas City Symposium on “Housing, Housing Finance, and Monetary Policy,” Jackson Hole WY, Aug 30–Sep. 1
    [Google Scholar]
  30. Ling DC, Naranjo A. 2015. Returns and information transmission dynamics in public and private real estate markets. Real Estate Econ 43:163–208
    [Google Scholar]
  31. Ling DC, Ryngaert M. 1997. Valuation uncertainty, institutional involvement, and the underpricing of IPOs: the case of REITs. J. Financ. Econ. 43:433–56
    [Google Scholar]
  32. Liu C, Mei J. 1992. The predictability of returns on equity REITs and their co-movement with other assets. J. Real Estate Finance Econ. 5:401–18
    [Google Scholar]
  33. Mao Y. 2017. Managing innovation: the role of collateral Tech. Rep., Cornell Univ Ithaca, NY:
    [Google Scholar]
  34. Mühlhofer T. 2013. Why do REIT returns poorly reflect property returns? Unrealizable appreciation gains due to trading constraints as the solution to the short-term disparity. Real Estate Econ 41:814–57
    [Google Scholar]
  35. Packer F, Riddiough T, Shek J 2014. A global tour of commercial property and REIT markets. Int. Real Estate Rev. 17:241–74
    [Google Scholar]
  36. Pagliari JL Jr 2016. Real estate returns by strategy: Have value-added and opportunistic funds pulled their weight. Real Estate Econ https://doi.org/10.1111/1540-6229.12190
    [Crossref] [Google Scholar]
  37. Pagliari JL Jr., Scherer KA, Monopoli RT. 2005. Public versus private real estate equities: a more refined, long-term comparison. Real Estate Econ 33:147–87
    [Google Scholar]
  38. Pavlov A, Steiner E, Wachter S 2018. REIT capital structure choices: Preparation matters. Real Estate Econ 46:160–209
    [Google Scholar]
  39. Plazzi A, Torous W, Valkanov R 2010. Expected returns and expected growth in rents of commercial real estate. Rev. Financ. Stud. 23:3469–519
    [Google Scholar]
  40. Plazzi A, Torous W, Valkanov R 2011. Exploiting property characteristics in commercial real estate portfolio allocation. J. Portf. Manag. 37:39–50
    [Google Scholar]
  41. Riddiough T, Steiner E. 2017. Financial flexibility and manager–shareholder conflict: evidence from REITs. Real Estate Econ https://doi.org/10.1111/1540-6229.12226
    [Crossref] [Google Scholar]
  42. Riddiough TJ, Moriarty M, Yeatman P 2005. Privately versus publicly held asset investment performance. Real Estate Econ 33:121–46
    [Google Scholar]
  43. Sagi JS. 2017. Asset-level risk and return in real estate investments Tech. Rep., Univ. N.C Chapel Hill:
    [Google Scholar]
  44. Strauss J. 2013. Does housing drive state-level job growth? Building permits and consumer expectations forecast a state's economic activity. J. Urban Econ. 73:77–93
    [Google Scholar]
  45. Sun L, Titman SD, Twite GJ 2015. REIT and commercial real estate returns: a postmortem of the financial crisis. Real Estate Econ 43:8–36
    [Google Scholar]
  46. Tuzel S. 2010. Corporate real estate holdings and the cross-section of stock returns. Rev. Financ. Stud. 23:2268–302
    [Google Scholar]
  47. Tuzel S, Zhang BM. 2017. Local risk, local factors, and asset prices. J. Finance 72:325–70
    [Google Scholar]
  48. Van Nieuwerburgh S. 2019. Why are REITS currently so expensive?. Real Estate Econ 47:18–65
    [Google Scholar]
  49. Wu J, Gyourko J, Deng Y 2015. Real estate collateral value and investment: the case of China. J. Urban Econ. 86:43–53
    [Google Scholar]
  50. Yavas A, Yildirim Y. 2011. Price discovery in real estate markets: a dynamic analysis. J. Real Estate Finance Econ. 42:1–29
    [Google Scholar]
/content/journals/10.1146/annurev-financial-110118-123121
Loading
/content/journals/10.1146/annurev-financial-110118-123121
Loading

Data & Media loading...

Supplementary Data

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error