Does Investor Size Matter? Evidence from Commercial Real Estate Transactions

Abstract

Employing an efficient Bayesian estimation procedure, Integrated Nested Laplace Approximation (INLA), we find evidence of Investor Size Premium. Controlling for investor skill, financing constraints, and prior market knowledge, as well as property and time-varying location specific factors and property random effects, we find that larger buyers tend to pay a significant price
premium relative to smaller buyers, for the otherwise identical property. Debt plays a role for the length of the holding period. These results point to a significant role of intrinsic valuations and the role of bargaining intensity and can explain why real estate markets are highly segmented.

Keywords: Investor size; Bayesian estimation, price and holding period, market segmentation, bargaining intensity.

JEL Classification: C11, G10