On the Efficiency of the Upreit Organizational Form: Implications for the Subprime Crisis and CDO's
Muhammed Shahid Ebrahim
Bangor University - University of Wales System
Southern Illinois University at Carbondale - Department of Finance
March 10, 2011
Nottingham University Business School Research Paper No. 2009-05
This paper studies optimal real estate organizational forms as a means of enhancing real estate values in the ongoing subprime crisis. We model the organizational response to stakeholder conflicts and regulatory changes to show how they evolve to an optimal form and undertake an optimal capital structure to enhance the welfare of investors. Using the examples of the REIT and RELP organizational forms, we show how the rivalry between taxable and institutional investors shapes the UPREIT form. We employ a two-period partial equilibrium model to demonstrate that UPREITs adapt to regulatory changes by (i) meticulously acquiring a hybrid form (containing the desirable features of both REITs and RELPs), and (ii) efficiently trading off debt claims (between their constituent investor bases). This adaptation enhances welfare by mitigating administrative costs, agency costs, bankruptcy costs, illiquidity costs and taxes.
Number of Pages in PDF File: 41
Keywords: Administrative Costs, Agency Costs, Bankruptcy Costs, CDOs, Illiquidity Costs and Taxes
JEL Classification: D58, G12, G21, G23, G32, G33, H25, L22, L85, O12, O16, O18, R51working papers series
Date posted: February 19, 2009 ; Last revised: May 3, 2011
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