Geographic Proximity and Competition for Scarce Capital: Evidence from U.S. Reits

48 Pages Posted: 24 Mar 2020 Last revised: 22 May 2020

See all articles by Chongyu Wang

Chongyu Wang

The University of Hong Kong

Jeffrey Cohen

University of Connecticut - School of Business; Federal Reserve Banks - Federal Reserve Bank of St. Louis

John L. Glascock

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies; European Business School

Date Written: February 24, 2020

Abstract

The question of whether or not REITs compete for scarce capital across geographic space is deserving of attention. In this study we consider the issue of spatial competition among REITs across U.S. states in terms of the degree of interdependencies in financial capital demand. First, we motivate the issue with a theoretical model of cost minimization by a representative REIT in a given U.S. state and demonstrate that a priori it is unclear whether a REIT’s capital demand depends on capital demand of REITs in other states. Then we use spatial econometrics techniques and find empirically that REITs compete for financial capital with REITs in other states. We also find evidence of feedback (or indirect) effects, implying amplified crowding out of financial capital when other REITs in nearby states increase financial capital demand. Our findings are aligned with the Predation Hypothesis, which suggests that REIT managers might exploit neighboring REITs’ and/or investors’ financial distress as an opportunity to steal market share from them. Another key contribution of this study is that we focus on capital liquidity as opposed to stock liquidity.

Keywords: REITs, Financial Capital Scarcity, Geographic Spillovers

JEL Classification: G32, R11, R15

Suggested Citation

Wang, Chongyu and Cohen, Jeffrey and Glascock, John L., Geographic Proximity and Competition for Scarce Capital: Evidence from U.S. Reits (February 24, 2020). International Real Estate Review, 2020, University of Connecticut School of Business Research Paper No. 20-02, Available at SSRN: https://ssrn.com/abstract=3543525 or http://dx.doi.org/10.2139/ssrn.3543525

Jeffrey Cohen

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

John L. Glascock

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies ( email )

Storrs, CT 06269
United States

European Business School ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

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