How Big of a Lemons Market is the Secondary Market for Private Equity Real Estate

Journal of Real Estate Finance and Ecnomics, October 2019, Volume 59, Issue 3, pp 391–418

Posted: 5 Dec 2019

See all articles by David Barker

David Barker

University of Iowa

Kiat Ying Seah

National University of Singapore (NUS)

James D. Shilling

DePaul University; National Bureau of Economic Research (NBER)

Date Written: October 20, 2019

Abstract

We find that shares of real estate limited partnerships sell at substantial discounts to net asset values (NAV) and these discounts are influenced by factors associated with agency costs and unrealized gains. Our study builds on previous work by Barber (1996) by examining a much longer time period (1994-2013), including additional control variables, and utilizing Tobit estimation instead of OLS, which we find superior. We find much larger effects of unrealized capital gains than Barber (1996). Factors that reduce fund managers' freedom to take actions that might reduce shareholder returns such as leverage and high dividend payments reduce discounts.

Keywords: private equity capital; Secondary markets; Brokerage; Trading prices

JEL Classification: G24; G3; G31; G12

Suggested Citation

Barker, David and Seah, Kiat Ying and Shilling, James D., How Big of a Lemons Market is the Secondary Market for Private Equity Real Estate (October 20, 2019). Journal of Real Estate Finance and Ecnomics, October 2019, Volume 59, Issue 3, pp 391–418, Available at SSRN: https://ssrn.com/abstract=3490824

David Barker

University of Iowa ( email )

341 Schaeffer Hall
Iowa City, IA 52242-1097
United States

Kiat Ying Seah

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

James D. Shilling (Contact Author)

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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