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How Do Firms Finance Nonprimary Market Investments? Evidence from REITs
Author(s) -
Conklin James,
Diop Moussa,
Qiu Mingming
Publication year - 2017
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12212
Subject(s) - real estate investment trust , investment (military) , finance , real estate , debt , economics , commercial mortgage backed security , capitalization rate , business , monetary economics , flexibility (engineering) , primary market , financial system , paleontology , management , horse , politics , political science , stock market , law , biology
This study explores the impact of investment characteristics, mainly investment location relative to the firm's 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.