They Would If They Could: Assessing the Bindingness of the Property Holding Constraints for Reits

47 Pages Posted: 16 Apr 2019

See all articles by Tobias Muhlhofer

Tobias Muhlhofer

University of Miami - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: Summer 2019


This study examines the bindingness of the property holding constraints which Real Estate Investment Trusts (REITs) face on their portfolios (the dealer rule), and illustrates how these constraints hinder REITs from exploiting opportunities to time the property market. I first simulate a set of filter‐based market timing strategies, which outperform a buy‐and‐hold strategy out of sample, and show that imposing a four‐year (or even the newer two‐year) holding constraint significantly reduces the excess returns the strategies generate. I then analyze actual holding periods of properties in REIT portfolios and find that there seems to exist a large degree of demand for short property holding periods and that the trades generated by the filter strategy generally resemble actual REIT trading activity, validating the relevance of the simulation results. A direct test for the constraint reveals that REITs' propensity to hold a property beyond the minimum period increases, the higher the profit from the transaction, consistent with the asymmetric nature in which the rule is enforced. By contrast, this effect is insignificant for Umbrella‐Partnership REITs (UPREITs), which are not as affected by the constraint. I further show that UPREITs overall achieve significantly better ex‐post market timing performance than non‐UPREITs. I thus find that overall REITs are limited by the dealer rule.

Suggested Citation

Muhlhofer, Tobias, They Would If They Could: Assessing the Bindingness of the Property Holding Constraints for Reits (Summer 2019). Real Estate Economics, Vol. 47, Issue 2, pp. 431-477, 2019, Available at SSRN: or

Tobias Muhlhofer (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States


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