REIT Economies of Scale: Fact or Fiction?

Posted: 19 Feb 2001

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Steven R. Ehrlich

Government of the United States of America - Office of Policy Development & Research

William T. Hughes Jr.

MIT Realty Advisors

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Abstract

The real estate industry has recently witnessed significant and pervasive consolidation with further growth and consolidation generally viewed as a foregone conclusion. For example, between 1990 and 1997, growth in average net real estate investments by large REITs outpaced growth in average net real estate investments by small REITs by 13 percent. However, no systematic study of the benefits of this consolidation exists. This research studies whether or not there are gains to consolidation due to economies of scale from size, brand imaging, and informational gains from geographic specialization. Our sample consists of 41 multifamily equity REITs, for whom finanical and property level data are available in the SNL REIT Database. Using this data, we construct 'shadow' portfolios that mimic each REIT's exposure to changes in local market conditions. Our results show no size economies, that branding in real estate is allusive, and that geographic specialization, in agreement with Gyourko and Nelling (1993), has no significant benefit.

Keywords: REITs, Economies of Scale

JEL Classification: G34

Suggested Citation

Ambrose, Brent W. and Ehrlich, Steven R. and Hughes, William T. and Wachter, Susan M., REIT Economies of Scale: Fact or Fiction?. Journal of Real Estate Finance & Economics, Vol. 20, No. 2, 2000. Available at SSRN: https://ssrn.com/abstract=181630

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Steven R. Ehrlich

Government of the United States of America - Office of Policy Development & Research ( email )

451 Seventh Street SW
Washington, DC 20230
United States

William T. Hughes

MIT Realty Advisors ( email )

250 Australian Avenue South Suite 400
407-820-1300 (Phone)
407-832-1622 (Fax)

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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