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In this paper we analyze market segmentation by firm size in the commercial real estate transaction process. Using novel micro-level data, we look at the probability distribution of investors acquiring a specific bundle of real estate characteristics, distinguishing between investors based on the size of their real estate portfolio. We find evidence of market segmentation by investor size: institutional investors segment across property characteristics based on the size of their real estate portfolio. The probability that a large (small) seller will sell a property to a similar-sized buyer is higher, keeping all else equal. We explore potential drivers of this market segmentation and find that it is mainly driven by investor preferences. During the Global Financial Crisis (GFC), large investors were less likely to buy the ‘average’ property, as compared to the period before or after the crisis, indicating time-varying investor preferences.

This paper uses variation in real estate prices to study Chief Executive Officer (CEO) pay for luck. We distinguish between pay for luck and pay for responding to luck (action) by exploiting US GAAP accounting rules, which mandate that real estate used in the firm’s operations is not marked-to-market. This setting allows us to empirically disentangle pay for luck from pay for action, as a change in the value of real estate is only accounted for when the CEO responds to changes in property value. We show that CEO compensation is associated with the following two managerial responses to changes in real estate values: (i) real estate sales and (ii) debt issuance. Overall, we show that CEOs are rewarded for taking value-enhancing actions in response to luck.

Private real estate markets have experienced signi ficant in inflows of institutional capital over the last couple of decades. In this paper we seek to understand what are the implications of this recent development. Employing a generalized Hamiltonian Monte Carlo Bayesian procedure we find novel empirical evidence that market entry by large institutional investors predicts higher uncertainty and greater noise in real estate prices in the short and medium run, and lower longitudinal risk in the long run. Our findings point to a signi ficant eff ect of institutional capital, which serves as a catalyst for structural changes in real estate market risk.

Combining granular data on temperatures across the continental US with micro-level commercial real estate (CRE) data from 1991 to 2020, we study the impact of exposure to extreme temperature shocks on investment performance of CRE at the individual asset level. We find that exposure to extreme temperatures significantly reduces average realized total returns in CRE. This result is driven by reduction in asset returns. We do not observe a significant effect of income return. We document substantial variation in sensitivity to temperature shocks across property types. Our results seem to be driven by shocks to time-varying CRE risk premium due to decreased predictability of future rental income.

This paper estimates the impact of opioid abuse on real estate prices. We exploit the variation in opioid prescriptions induced by the staggered passage of state laws intending to limit the abuse of opioids. We document a long-term negative relationship between opioid prescriptions and residential real estate prices. For a one standard deviation change in prescriptions we find a 1.36 percentage points change in home values over the following 5 years. We also estimate a positive increase in home prices of 0.54 and 0.91 percentage points respectively in the first and second years following the passage of these laws. One im- portant factor driving this relationship are changes in mortgage delinquency rates. Overall, our results are consistent with opioid abuse having significant long lasting negative economic effects that are mitigated if opioid supply is limited.

We investigate whether business ties with portfolio firms influence mutual funds' proxy voting using a comprehensive data set spanning 2003 to 2011. In contrast to prior literature, we find that business ties significantly influence promanagement voting at the level of individual pairs of fund families and firms after controlling for Institutional Shareholder Services (ISS) recommendations and holdings. The association is significant only for shareholder-sponsored proposals and stronger for those that pass or fail by relatively narrow margins. Our findings are consistent with a demand-driven model of biased voting in which company managers use existing business ties with funds to influence how they vote. [ABSTRACT FROM AUTHOR]

This paper examines how the international demand for luxury consumption affects the real estate market in global hotspots. Using a unique data set of housing transactions in Paris, we find that (i) non-resident foreigners crowd out residents in highly desirable areas of the city, especially in good times; (ii) these non-residents overpay and realize lower capital gains when reselling; and (iii) purchases by non-resident foreigners have a causal positive effect on price levels. Our results illustrate the importance of foreign buyers — and their tastes — in attractive locations worldwide.

In firms with multiple blockholders governance via exit is affected by how blockholders react to each others' exit. Institutional investors, who hold the majority of equity blocks, are heterogeneous in their incentives. How do these incentives affect the manner in which institutional blockholders respond to each others' exit? We present a model that shows that open-ended institutional investors, who are subject to investor redemption risk, will be sensitive to an informed blockholder's exit, giving rise to correlated exits and strengthening governance. Thus, exposure to redemption risk, universally a negative force in asset pricing, plays a positive role in corporate governance. Using data on engagement campaigns by activist hedge funds we present large-sample evidence consistent with our theoretical mechanism.

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.

By considering banks as portfolios of assets in different locations, we study how real estate shocks are transmitted across bank’s business areas while controlling for local demand shocks and bank location–specific factors. Affected banks substantially alter their loan portfolios: we find evidence of real estate price declines affecting both real estate and non-real estate types of lending. Banks also roll over and fail to liquidate problematic loans, while accumulating more non-performing loans. These results provide evidence of internal contagion of real estate shocks within banks.

In this paper I study the effect of changes in the value of parental housing wealth during children’s teenage years on the parental and children’s financial outcomes and consumption patterns later in life. Increases in the value of home equity when children are teenagers affect the parents’ ability to finance children’s further education as well as other expenditures. In particular, appreciating house prices increase the value of housing equity, which in turn can increase parental investment in their children’s education due to a “wealth” effect, or because the value of their collateral to be used for financing college debt has increased. By using parental and their children’s demographic and financial information from the Panel of Income Dynamics (PSID), I investigate how increases in the housing value just before children turn 18, affect their indebtedness levels later in life, their likelihood of purchasing a house and their predominant choice of financing house purchases, as well as their consumption choices. In particular, I study whether these intergenerational wealth transfers operate through relaxation of financing constraints (the collateral channel), or through increases in wealth (the wealth channel).

Previous research has shown that non-local household investors make sub-optimal asset selection and market timing decisions. However, in real estate markets, heterogeneity in returns can exist even with identical ex ante investment (timing) choices, given that transaction prices are the outcome of a complex search-and-bargaining process. Analyzing notarial data for the Paris housing market, we find that “out-of-country” buyers indeed buy at higher prices and resell at substantially lower prices than local investors, ceteris paribus. Furthermore, our evidence suggests that this pattern is not due to higher search costs and information asymmetries, but instead stems from wealth-related differences in bargaining intensity. Finally, we estimate the causal effect of out-of-country demand shocks on property prices in Paris to be positive but small.

Voting outcomes can differ from underlying preferences due to selection into voting. One source of such selection is lower participation of shareholders with popular preferences (free-rider effect) relative to that of those with unpopular preferences (underdog effect). We illustrate these strategic effects in a rational choice model in which the voting participation decision depends on the probability of being pivotal and the costs and benefits of voting. Based on the model, we structurally estimate unobservable shareholder preferences in US data. We show that strategic selection into voting is relevant: 13% of voting outcomes in shareholder governance proposals represent the minority.