Nonlocal Office Investors: Anchored by Their Markets and Impaired by Their Distance

Posted: 9 Jan 2015

See all articles by Paul Gallimore

Paul Gallimore

University of Reading - School of Real Estate & Planning

Jonathan Wiley

Georgia State University

Date Written: January 7, 2015

Abstract

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

Suggested Citation

Gallimore, Paul and Wiley, Jonathan, Nonlocal Office Investors: Anchored by Their Markets and Impaired by Their Distance (January 7, 2015). Journal of Real Estate Finance and Economics, Vol. 50, No. 1, 2015. Available at SSRN: https://ssrn.com/abstract=2546416

Paul Gallimore

University of Reading - School of Real Estate & Planning ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Jonathan Wiley (Contact Author)

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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