On the Efficiency of the Upreit Organizational Form: Implications for the Subprime Crisis and CDO's

41 Pages Posted: 19 Feb 2009 Last revised: 3 May 2011

See all articles by Muhammed Shahid Ebrahim

Muhammed Shahid Ebrahim

Durham Business School

Ike Mathur

Southern Illinois University at Carbondale - Department of Finance

Date Written: March 10, 2011

Abstract

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.

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, R51

Suggested Citation

Ebrahim, Muhammed Shahid and Mathur, Ike, On the Efficiency of the Upreit Organizational Form: Implications for the Subprime Crisis and CDO's (March 10, 2011). Nottingham University Business School Research Paper No. 2009-05. Available at SSRN: https://ssrn.com/abstract=1346354 or http://dx.doi.org/10.2139/ssrn.1346354

Muhammed Shahid Ebrahim (Contact Author)

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Ike Mathur

Southern Illinois University at Carbondale - Department of Finance ( email )

Mailcode 4626
Carbondale, IL 62901-4626
United States
618-453-1421 (Phone)
618-453-5626 (Fax)

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