Nonlocal Office Investors: Anchored by Their Markets and Impaired by Their Distance
Posted: 9 Jan 2015
Date Written: January 7, 2015
Nonlocal investors purchase and sell investment property in a distant metropolitan area. In this study, we identify capital value underperformance for nonlocal investors on both sides of the transaction, when they purchase and when they sell. The commercial real estate transactions data include a national sample of office property occurring in more than 100 U.S. markets. Using propsensity-score matched sample to control for selection bias, we find that nonlocal investors overpay on the purchase by an estimated 13.8% and sell at an estimated 7% discount. These disadvantages relative to local investors expand with the geographic distance separating investor and asset. Nonlocal investors fundamentally overvalue similar assets sold to each other relative to assets transacted between locals, and are less patient as sellers. The positive bias in overpayment is directly tied to office rent differentials between the asset and investor markets.
Keywords: Market efficiency; Investor clienteles; Information asymmetry
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