Ownership Dynamics of Reits

Posted: 13 Oct 2004

See all articles by Robert H. Edelstein

Robert H. Edelstein

University of California, Berkeley - Fisher Center for Real Estate and Urban Economics

Branko Urosevic

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Nicholas X. Wonder

Western Washington University - College of Business & Economics

Abstract

This paper studies the effects that benefits of control and moral hazard have on the evolution of large stakes in REITs. A large risk-averse shareholder trades off the net benefits of REIT business monitoring and control with the cost of bearing risk beyond the level compensated by the REIT return premium. In equilibrium, the large shareholder gradually adjusts his ownership shares level (as long as his marginal benefits from holding shares increase in his REIT stake) towards the long-run competitive equilibrium in which his marginal share valuation coincides with that of the market. Because of the moral hazard, such level of ownership (and monitoring) is, in general, inefficient. The speed of adjustment is positively correlated with the agent's risk aversion and company volatility, and negatively correlated with his marginal benefits of control and beneficial monitoring effects.

Keywords: real estate investment trusts, corporate stock ownership, real estate returns, stock market price dynamics

Suggested Citation

Edelstein, Robert H. and Urosevic, Branko and Wonder, Nicholas X., Ownership Dynamics of Reits. Available at SSRN: https://ssrn.com/abstract=602561

Robert H. Edelstein (Contact Author)

University of California, Berkeley - Fisher Center for Real Estate and Urban Economics ( email )

Haas School of Business
Berkeley, CA 94720-1900
United States
510-643-6105 (Phone)
510-643-7357 (Fax)

Branko Urosevic

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
34-93-542-2590 (Phone)

Nicholas X. Wonder

Western Washington University - College of Business & Economics ( email )

Department of Finance and Marketing
Bellingham, WA 98225-9071

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,110
PlumX Metrics