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
Date Written: November 15, 2016
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: Suggested Citation