How Do Firms Finance Non-Primary Market Investments? Evidence from REITs

Real Estate Economics 46 (2018) 120 -159

44 Pages Posted: 17 Nov 2016 Last revised: 5 Nov 2019

See all articles by James Conklin

James Conklin

University of Georgia

Moussa Diop

University of Southern California

Mingming Qiu

Michigan State University - Department of Finance

Date Written: November 15, 2016

Abstract

This study explores the impact of investment characteristics, mainly investment location relative to the firm’s primary market, on financing choices by real estate investment trusts (REITs). Using a large sample of commercial property acquisitions, we show that REITs are 4-8% less likely to use secured (mortgage) debt when acquiring properties in their primary markets than elsewhere. The documented evidence supports a demand-side story for the relation between investment characteristics and financing. Moreover, the evidence is consistent with the hypothesis that REITs avoid mortgage financing in their primary markets to preserve operational flexibility in those markets.

Keywords: Commercial Property Acquisitions, Core Investment, Investment Characteristics, Financing Choices, REITs

JEL Classification: G21, G31, G32, R3

Suggested Citation

Conklin, James and Diop, Moussa and Qiu, Mingming, How Do Firms Finance Non-Primary Market Investments? Evidence from REITs (November 15, 2016). Real Estate Economics 46 (2018) 120 -159, Available at SSRN: https://ssrn.com/abstract=2870975 or http://dx.doi.org/10.2139/ssrn.2870975

James Conklin

University of Georgia ( email )

Athens, GA 30602-6254
United States

Moussa Diop (Contact Author)

University of Southern California ( email )

Sol Price School of Public Policy
RGL 315
Los Angeles, CA 90089
United States
(213)821-0467 (Phone)

Mingming Qiu

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States
5178842995 (Phone)

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