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We study how professional investors capitalize flood risk in commercial real estate (CRE) markets after hurricane Sandy. We show that New York CRE exposed to flood risk trades at a large, persistent discount. CRE in Boston, which mostly escaped direct hurricane-related damage, also exhibits persistent price penalties. These price effects are driven by asset-level capitalization rates, not building occupancy. Results from a placebo test using real estate prices in Chicago show that our inferences are not driven by coincidental, unrelated price trends for waterfront real estate assets. Our results are consistent with professional investors responding to a persistent shift in the salience of flood risk post-Sandy, even in locations spared by the disaster.

Cannabis legalization is a hotly contested policy topic. While beneficial to some, cannabis dispensaries may create negative externalities for others. This paper studies the external effects of coffeeshops – Dutch cannabis sales facilities – on house prices. We employ a difference-in-difference framework around a change in regulation, leading to exogenous coffeeshop closings. We find that closings have a negative effect on house prices. Compared to homes nearby remaining coffeeshops, homes nearby closing coffeeshops decrease on average 1.6 to 8.5 percent in value. The findings are robust to a battery of tests and unaffected by the subsequent use of coffeeshop locations.

The managerial optimism literature concentrates on CEOs neglecting other executive team members. We evaluate the interplay of the optimism levels of the CEOs and CFOs of real estate investment trusts, and study their commercial real estate transactions. We find that firms led by optimistic CEO/CFO teams pay 3% more than their peers for their asset acquisitions if cash ratio increases by one percentage point. Our findings also exhibit inferior stock performance by optimistic teams following a transaction. Conversely, diversity in terms of CEO/CFO optimism prevents firms from overpaying, serving as a soft governance mechanism with salience to firm performance.

Renewable energy production is one of the most important policy instruments to fight climate change. However, despite global benefits, renewable energy production entails some local challenges, such as requiring more space per unit production capacity. In this paper, we study the external effects of large-scale conventional and renewable electric power generation facilities on local house prices. We combine information of all coal, gas, and biomass plants, as well as all wind turbines in the Netherlands, with 1.5 million housing transactions over a period of 30 years. Using a difference-in-difference as well as a repeated sales model, we study the effects of facility openings and closings. Our results show negative external price effects for gas plants and wind turbines, but positive effects for biomass plants, conditionally upon ex-ante lower priced locations. The external effects of power generating facilities on local housing markets are important to consider, especially with the current focus of public policies on the expansion of renewable energy generation. Our paper is one of the first to present a large-scale study, using detailed information, and comparing several different energy sources in one framework.

We investigate the relationship between housing conditions and health outcomes using a data set that tracks 25,000 German households over 25 years. We document that individuals exposed to poor housing conditions report worse mental and physical health, and experience an 11% increase in doctor visits, increasing to 20% for age groups over 64. The analysis controls for individual, dwelling, and temporal fixed effects, and is robust to changes in socioeconomic status, lifestyle choices, and neighborhood conditions. As a robustness check, we use home renovations as major a trigger of changes in housing conditions. Restricting the analysis to tenants, whose renovations are paid by landlords, we document that home renovations significantly reduce doctor visits, corroborating the findings on home conditions and health outcomes.

Alternative assets represent an increasing share of pension fund assets, and real estate is a cornerstone of that allocation. This article investigates the trends in pension fund real estate investments over the past 3 decades, both in private and in public real estate, focusing on the performance of the asset class for the ultimate asset owners. The development of pension fund allocations to real estate differs across regions, with allocations increasing in Canada, stationary in the US, and shrinking in Europe. Slightly more than 10% of the real estate exposure is through publicly listed vehicles. Within the real estate portfolio, the authors observe a continuing increase in the use of external fund managers. Investment costs are stationary, with pension funds in the US structurally paying more to their external private real estate managers than their peers in Canada and Europe. Costs relating to public real estate are more equal across regions. In terms of performance, the authors observe rather stable total returns for both private and listed real estate over the past 3 decades, contrasting volatile performance of private equity and infrastructure. Intermediated investment management for private real estate is costly, leading to disproportionately lower net returns. TOPICS:Real estate, developed markets, pension funds, performance measurement Key Findings ▪ Current pension fund allocation to real estate is 8.3%, on average, with a 90/10 split between private real estate and public real estate. ▪ Pension funds deploy a wide range of real estate allocation strategies, with intermediation growing in popularity over the past decades. ▪ Real estate has provided stable returns over the past decades, with gross returns similar to stocks, and net returns in between bonds and stocks.

We estimate total returns to rental housing by studying over 170,000 hand-collected archival observations of prices and rents for individual houses in Paris (1809–1943) and Amsterdam (1900–1979). The annualized real total return, net of costs and taxes, is 4.0% for Paris and 4.8% for Amsterdam and entirely comes from rental yields. Our returns weakly correlate with the implied returns in Jordà et al. (2019) and are substantially lower. We decompose total return risk at the individual asset level and find that yield risk becomes an increasingly important component of property-level risk for longer investment horizons.

Due to copyright restrictions, the access to the full text of this article is only available via subscription. This paper investigates whether corporate diversification by property type and by geography reduces the costs of debt capital. It employs asset-level information on the portfolios of U.S. REITs to measure diversification and looks at two of their main sources of debt capital: 1,173 commercial mortgages and 952 bank loans. The paper finds that diversification across different property types does indeed dependably reduce the cost of these different types of debt. The effect is about 7 basis points for bank loans if a firm’s property Herfindahl Index is lowered by one standard deviation and this effect gets stronger for REITs with worse financial health – as measured by the interest coverage ratio. The corresponding effect for commercial mortgages is around 22 basis points for collateral diversification by property type. After the crisis, the salience of the collateral asset increases. For diversification across regions, we do not find a consistent relationship between real asset diversification and loan pricing.

The consensus in the academic literature is that energy efficiency is associated with transaction value premiums, but it is not clear to what extent property appraisers take account of this. We decompose external appraisals of rental housing by international valuation firms in England and the Netherlands in two waves, keeping the samples of valued homes constant between these years. We find a notable change in the behavior of external property appraisers. In England, energy performance does not impact assessed values in 2012, while estimation results for 2015 show a significant discount in assessed values for D-, E- and F- relative to C-labeled dwellings. For the Netherlands, we do not observe a significant relationship between energy efficiency and assessed values in 2010, but in 2015 we find that more energy efficiency leads to higher external valuations.

Introduction:Following a period of strict lockdowns during the COVID-19 pandemic, most countries introduced policies in which citizens were expected to avoid crowded places using common sense, as advised by the WHO. We argue that the ambiguity in the recommendation to “avoid crowded places” implicitly forces individuals to make a complex strategic decision.Methods:Using a Dutch representative sample of 1,048 participants [42% male, mean age=43.78years (SD=12.53), we examine the effect of context on the decision to visit a hypothetical recreational hotspot under the policy recommendation to “avoid crowded places.” We randomize four levels of context on the crowdedness “on the streets” (no context, low, medium, and high context). Subsequently, participants are asked to estimate the percentage of others going out in the same situation. Finally, we assess the impact of a selection of personal characteristics on the likelihood of visiting a crowded place.Results:Respondents are proportionally more likely to go in a low context and high context, compared to no context (diff=0.121,ppppz=4.68,pz=7.34,pDiscussion:Although there is a strong inclination to avoid crowded places during the COVID-19 pandemic (81%), we find two context-driven exceptions: when people expect to avoid crowded spots (in the “low” context, i.e., strategical decision-making) and when people expect others to go (social influence). The freedom provided by ambiguous public policy is implicitly asking more from the population than it initially seems. “Use your common sense” is often the accompanied advice, but our results show that more and better information concerning the context is essential to enable us to make an optimal decision for ourselves, and for society.

The increasing societal focus on environmental issues leads to important questions about the relationship between corporate environmental (ESG) performance and firms'' cost of capital, but research on this topic remains scant. The real estate sector offers an ideal testing ground to investigate the relationship in two distinct manners, while specifically addressing concerns about endogeneity. We first investigate the spreads on commercial mortgages collateralized by real assets, some of which are environmentally certified. We then study spreads on corporate debt of property companies (REITs), both at issuance and while trading in the secondary market. The results show that loans on environmentally certified buildings command lower spreads than conventional, but otherwise comparable buildings, varying between 24 and 29 basis points, depending on the specification. At the corporate level, REITs with a higher fraction of environmentally certified buildings have lower bond spreads in the secondary market. These results are robust to different estimation strategies, and signal that environmental risk is efficiently priced in the real estate debt market. Crown Copyright

Introduction: Following a period of strict lockdowns during the COVID-19 pandemic, most countries introduced policies in which citizens were expected to avoid crowded places using common sense, as advised by the WHO. We argue that the ambiguity in the recommendation to “avoid crowded places” implicitly forces individuals to make a complex strategic decision. Methods: Using a Dutch representative sample of 1,048 participants [42% male, mean age = 43.78 years (SD=12.53), we examine the effect of context on the decision to visit a hypothetical recreational hotspot under the policy recommendation to “avoid crowded places”. We randomize four levels of context on the crowdedness “on the streets” (no context, low, medium, and high context). Subsequently, participants are asked to estimate the percentage of others going out in the same situation. Finally, we assess the impact of a selection of personal characteristics on the likelihood of visiting a crowded place. Results: Respondents are proportionally more likely to go in a low context and high context, compared to no context (diff = .121, p

Alternative assets represent an increasing share of pension fund assets, and real estate is a cornerstone of that allocation. This paper investigates the trends in pension fund real estate investments over the last three decades, both in private and in public real estate, focusing on the performance of the asset class for the ultimate asset owners. The development of pension fund allocations to real estate differs across regions, with allocations increasing in Canada, stationary in the U.S., and shrinking in Europe. Just over 10% of the real estate exposure is through publicly listed vehicles. Within the real estate portfolio, the authors observe a continuing increase in the use of external fund managers. Investment costs are stationary, with pension funds in the U.S. structurally paying more to their external private real estate managers than their peers in Canada and Europe. Costs relating to public real estate are more equal across regions. In terms of performance, the authors observe rather stable total returns for both private and listed real estate over the last three decades, contrasting volatile performance of private equity and infrastructure. Intermediated investment management for private real estate is costly, leading to disproportionately lower net returns.

Indoor climate interventions are often motivated from a worker comfort and productivity perspective. However, the relationship between indoor climate and human performance remains unclear. We assess the effect of indoor climate factors on human performance, focusing on the impact of indoor temperature on decision processes. Specifically, we expect heat to negatively influence higher cognitive rational processes, forcing people to rely more on intuitive shortcuts. In a laboratory setting, participants (N=257) were exposed to a controlled physical environment with either a hot temperature (28oC) or a neutral temperature (22oC), in which a battery of validated tests were conducted. We find that heat exposure did not lead to a difference in decision quality. We did find evidence for a strong gender difference in self-report, such that only men expect that high temperature leads to a significant decline in performance, which does in fact not materialize. These results cast doubt on the validity of self-report as a proxy for performance under different indoor climate conditions.

The literature regarding the effects of managerial optimism concentrates on CEOs, all but neglecting the broader executive team. We evaluate the interplay of the optimism levels of the CEOs and CFOs of listed real estate investment trusts, and study the commercial real estate transactions made by the firms led by these teams. We find that firms led by optimistic executive teams pay 2.7% more than their peers for their private asset acquisitions if the cash ratio increase by one percentage point. These firms also exhibit inferior stock performance following their asset acquisitions. Conversely, diverse opinions in the boardroom prevent firms from overpaying on their asset transactions, improving their stock performance relative to optimistic teams. Our findings suggest that diversity in terms of executive optimism is a soft governance mechanism with salience to firm performance.

Comparing banks to non-bank lenders, we investigate whether the geographical distance between lenders, borrowers and their properties is reflected in the pricing of US mortgages that were included in US CMBS pools during the 2000 to 2017 period. The difference in loan spread when bank-borrower distance increases from zero to the median of about 900 miles is 17 basis points, and this effect is more pronounced if the loan is collateralized by a riskier property. On the contrary, geographical distance does not seem to have any effect on the loan spread of mortgages granted by non-bank lenders. Moreover, loans granted to distant borrowers by both bank and non-bank lenders are more likely to default. Our results contribute to the emerging literature on non-bank lender behavior.

Energy efficiency plays an important role in reducing the carbon externality from buildings, but economic analyses of more efficient, green building have thus far ignored input costs. This paper finds that the average marginal cost of green-labeled construction projects is smaller than the value premiums documented in the literature. However, design fees, representing just a fraction of development costs but paid largely up-front, are significantly higher for green construction projects. These projects also take longer to complete. The results provide some insight into the market barriers and market failures that may explain the relatively slow adoption of otherwise economically rational green construction practices.

This article provides new insights into the performance of commercial real estate, focusing on the environmental performance of institutional assets. The authors employ a proprietary dataset of energy consumption data that includes more than 26,000 buildings between 2009 and 2018. They document that, in their sample of commercial real estate, the median energy intensity decreased by more than 40% over the decade. Using a difference-in-difference analysis, the authors find that adoption of environmental building certification (Leadership in Energy and Environmental Design) is associated with significantly lower energy consumption and that there is substantial variation in these effects, depending on certification level and program, and label tenure. Moreover, specific interventions aimed at improving the energy efficiency of buildings considerably reduce ex post energy consumption, with effects varying based on local climatic conditions. TOPICS:Real estate, ESG investing Key Findings • Real estate investors and lenders have started to consider environmental certification and/or energy efficiency in financing and underwriting decisions. • We find that green building certification and investments in energy efficiency lead to significant reductions in building energy consumption. • The median energy consumption of commercial real estate decreased by 42% over the past decade.

Strong rental protection in many jurisdictions prevents affordable housing institutions from recouping their investment in the improved energy efficiency of dwellings. This impedes the path towards increased environmental performance in affordable housing. In the Netherlands, affordable housing institutions regularly sell from their housing stock, and if they can sell their energy efficient dwellings at a premium, this may stimulate investments in the environmental performance of homes. We analyze the value effects of energy efficiency in the affordable housing market, by using a sample of homes sold by Dutch affordable housing institutions in the period between 2003 and 2013. We use Energy Performance Certificates to determine the value of energy efficiency in these transactions. We document that dwellings with high energy efficiency sell for 1.9 to 7.2 percent more compared to otherwise similar dwellings with low energy efficiency. This implies a premium of some 3,000 to 11,400 euros for highly energy efficient affordable housing.

This is the Editors’ Introduction to the special issue of the Journal of Real Estate Finance and Economics. The issue includes six papers presented at the 2015 Maastricht-NUS-MIT (MNM) Symposium on International Real Estate Finance and Economics, held at the National University of Singapore in September 2015. This Introduction briefly describes the articles included in the special issue. The papers cover a broad range of topics.

Health is a critical factor for the generation of value by workers. Companies bear substantial costs associated with absenteeism and presenteeism among their employees. This study investigates the impact of the environmental conditions in the workplace on the health and job satisfaction of employees, as core factors of productivity. We provide evidence based on a natural experiment, in which 70% of the workforce of a municipality in the Netherlands was relocated to a building with a design focused on sustainability and health and well-being. We construct a longitudinal dataset based on individual surveys of the entire municipality workforce and include measures before and after the move. The estimation results show a significant improvement in the perceived environmental conditions, as well as in the health and well-being of the relocated workers, measured by the drop in incidence of sick building syndrome symptoms. Results are heterogeneous based on age: older groups of employees enjoy larger health impacts. The relocation effects remain persistent in the medium term (two years after the moving date). Importantly, a mediation analysis suggests that the achieved improvements in health and well-being lead to significantly enhanced job satisfaction and a 2% reduction in the prevalence of sick leave.

Sustainable real estate investment trust (REIT), analyses REIT environmental performance and the cost of equity by investigating the relationship between sustainability and the cost of equity capital for 211 listed US. Sustainability is measured using the two leading energy labelling programs, leadership in environmental and energy design and energy star, with the cost of equity assessed using four individual implied cost of equity models based on earnings per share forecasts, from which an average is taken with cost of equity estimates then regressed on the sustainability measures and relevant control variables. W. R. Gebhardt, C. Lee and B. Swaminathan use a model which calculates the cost of equity as a function of the return on equity. The J. Claus and J. Thomas model is a variation on the residual income or "abnormal earnings" model. The model proposed by J. A. Ohlson and B. E. Juettner-Nauroth is a generalization of the dividend growth model.

This study examines how sophisticated investors capitalize flood risk in commercial real estate markets. Using a detailed property-level transaction database, we document that New York commercial properties exposed to flood risk trade at a large persistent discount following Hurricane Sandy's landfall. Additionally, commercial properties in Boston, which largely escaped direct hurricane-related damage, exhibit persistent post-Sandy price penalties. In contrast, property prices in Chicago are unaffected by the storm. These results are consistent with a persistent shift in the salience of flood risk along the northeastern seaboard following Sandy's landfall, and reflect the northward migration of hurricanes induced by climate change.

This paper investigates spatial dependence in the prices of office buildings in Hong Kong, London, Los Angeles, New York City, Paris, and Tokyo for 2007 to 2013. Compared to prior literature, we find low economic impact from spatial dependence in all six markets, and spatial and spatial-temporal dependence do not moderate the effects of hedonic characteristics statistically or economically. However, investor and seller types as well as neighborhood location have a significant impact on the economic and statistical significance of the spatial and spatial-temporal parameters. Spatial office price indices for London, Paris and Tokyo decline somewhat more than do hedonic indices during the crisis.

Firms’ real estate choices significantly affect their sustainability, due to real estate’s impact on the natural environment. This paper investigates the ecological responsiveness of firms in specific industries by analyzing the decisions these firms make in occupying office space. We analyze the decisions of more than 11,000 tenants to choose office space in green buildings or in, otherwise comparable, conventional buildings nearby. Controlling for building quality and location, we find that corporations in the oil and banking industries, as well as non-profit organizations, are among the most prominent green tenants. Furthermore, measures of an industry’s human capital intensity are positively related to the propensity to lease green office space. These empirical findings confirm the theoretical framework on economic advantage and institutional pressure as important determinants for the ecological responsiveness of firms.

Inner city redevelopment frequently involves the assembly of small lots into bigger ones. We analyze joint lot development and the influence of coordination and transaction costs of land assembly on the exercise of the redevelopment option, using Amsterdam micro housing information for 1832, 1860 and 2015. In all, we have a complete set of building structure and household characteristics for dwellings on almost 30,000 lots for each of these years. We estimate a logit model to predict joint lot redevelopment, based on structural characteristics of lots and dwellings and on social characteristics of their occupants. The results show that both types of characteristics significantly explain land assembly, and the regression coefficients adhere to the theoretical land assembly literature. This paper contributes importantly to our knowledge of the specific land parcel and structural physical characteristics that impact redevelopment. To our knowledge, this is the first paper to study the joint characteristics of the potentially combinable lots, and to document and quantify the role of social characteristics in land assembly.

The recent global financial crisis (2007 – 2009) has shown what cataclysmic consequences the convergence of financial markets and real estate markets can have for national macro economies. The interweavement of the two markets provides opportunities for product innovations on the one hand and involves new risks on the other. Investors who are familiar with financial markets, do not necessarily know the peculiarities of real estate markets, and vice versa. The financial crisis has also shown how important it is, to adapt flexible holding strategies and to be able to unwind property investments quickly.Real estate is the last major asset class without liquid derivatives markets. The reasons for that are not fully known and understood. Three aggravating factors are the heterogeneous structure of real estate markets, the difficulties associated with the measurement of financial performance in a timely manner and a certain degree of predictability of real estate prices.Despite the size of the underlying market, the trading volume of property derivatives is comparatively low which results in large bid-ask spreads (i.e., high transaction costs). The conceivable migration of investors from the physical spot market to the derivative market has so far failed to materialise. The reasons for their reluctance towards property derivatives are not known or can only be conjectured as the literature in this field is scarce.This paper seeks to find out why are real estate investors reluctant to use property derivatives. The aim of the research is to better understand the factors that determine the acceptance of real estate derivatives and those that keep potential users from applying them. With an in-depth qualitative research framweork the view of potential users towards property derivatives shall be captured and current trading barriers be identified. Ways of overcoming them will be proposed. A better understanding of the investment behaviour and attitudes towards property derivatives will help explain why no liquid markets have been established yet, despite numerous attempts. Reasons for the low trading volumes on the two stock exchanges, the Chicago Mercantile Exchange (CME) in the U.S. and the European Exchange (Eurex) shall be identified.

This paper aims to determine the extent to which corporate political contributions and the allocation of government procurement contracts are related. We gather information regarding the contributions made by 911 S&P500 companies in 9 congressional election cycles between 1993 and 2010, and study subsequent government procurements. We find that making a contribution, especially to congressional candidates from the Democratic Party, is associated with a considerably higher likelihood of subsequently receiving a procurement contract. On average, a marginal contribution of 1 dollar is associated with 410 dollars in marginal procurements. Companies that contribute to a larger number of candidates subsequently get more procurement contract value. Furthermore, we show that the effects of contributions are persistent over time, that they vary strongly across industries and do not have negative spillovers on firm profitability regardless of the amount.

This paper contributes to the discussion whether changes in house prices can be explained by fundamental factors or trends. Using a long-term time series covering 350 years of house prices along the Herengracht in Amsterdam, we examine whether a fundamental factor or a trend explains house prices and whether their explanatory power is time varying. We find that agents in the housing market switch in their formation of expectations about future changes in house prices between fundamental and momentum strategies. Specifically, we show that agents base their expectations more on fundamentals during economic slowdowns and more on recent trends or momentum during economic booms.

This paper investigates how the demand for residential real estate depends on age and other demographic characteristics at the household level. Based on a detailed cross-sectional survey of English households, it finds that housing demand is significantly determined by a household’s human capital, and that housing demand generally increases with age. After retirement it declines, but only to a small extent. High education levels, good health, and high income will increase a household’s demand for housing even when households age. These results are relevant for countries that experience population shrinkage, but where total housing demand could still grow in the future despite stagnating household numbers and aging populations. The paper further shows that changes in demographics lead to very heterogeneous demand responses for different housing attributes, providing information regarding the future qualitative demand for housing.

We evaluate the economics of financial intermediation in alternative assets by investigating the allocation and performance of pension fund investments in real estate, the most significant alternative asset class for institutional investors. We document substantial heterogeneity in real estate investment cost and performance, determined by two main factors: mandate size and investment approach. Larger pension funds are more likely to invest in real estate internally, have lower costs, and higher net returns. Smaller pension funds invest primarily in direct real estate through external managers and fund-of-funds, and disregard listed property companies. Overall, we find that delegating real estate investment management to financial intermediaries increases costs and disproportionally reduces returns.

This is the first article to study the effects of overconfidence on trading activity and performance in real estate. The article looks at Real Estate Investment Trusts (REITs), as their investments and divestments can be identified with precision. We look at the effect of CEO overconfidence on investment activity and separately investigate property acquisitions and dispositions. We find that REITs with overconfident CEOs tend to invest more; these REITs acquire more assets and are less likely to sell assets than their counterparts if they have enough discretionary cash. Valuable private information is not the main driver for CEOs to be net buyers of company shares: the shares of their companies perform relatively weakly. In addition, we find that overconfident managers have lower property investment performance measured by net operating income and gain on sale of real estate.

Real estate is the third-largest asset class for institutional investors, but research into the performance of pension fund investments in real estate is scant. This article employs a unique set of data, the CEM database, to study the real estate investment approach, cost, and performance for a global panel of almost a thousand pension funds. The results show that smaller pension funds invest primarily in direct real estate, through external managers and fund-of-funds, and are likely to disregard listed property companies in their real estate allocation. Larger pension funds are more likely to invest in real estate internally, exhibit lower costs, and achieve higher net returns. Internal real estate investment management is associated with lower costs and disproportionally higher returns. Finally, we document that U.S. pension plans' real estate investments significantly underperform both their benchmarks and their foreign peers.

This article examines the inflation hedging capacity of the private home. We employ unique long-term data for inflation, house price dynamics and rents for Amsterdam dating back to 1814, allowing us to study total housing returns in different inflation regimes and for varying investment horizons. Our Amsterdam data show that homeownership's protection against actual and expected inflation increases with the investment horizon. This increase is especially strong for horizons up to 10 years. Inflation protection from housing is stronger when inflation is persistent, and the hedging capacities of housing regarding unexpected inflation are weak.

Attention to ‘sustainability’ and energy efficiency rating schemes in the commercial property sector has increased rapidly during the past decade. In the UK, commercial properties have been certified under the BREEAM rating scheme since 1999, offering fertile ground to investigate the economic dynamics of ‘green’ certification in the commercial property market. This paper documents that, over the 2000–09 period, the expanding supply of green buildings within a given London neighbourhood had a positive impact on average rents and prices, but reduced rents and prices for environmentally certified real estate. The results suggest that there is a gentrification effect from green buildings. However, each additional “green” building decreases the marginal effect of certification in the rental and transaction markets by 2 per cent and 5 per cent respectively. In addition, controlling for lease contract features, like contract length and the rent-free period, modifies the impact of environmental certification on rental prices.

Research on climate change suggests that small improvements in the "sustainability" of buildings can have large effects on greenhouse gas emissions and on energy efficiency in the economy. This paper analyzes the economics of "green" building. First, we analyze a panel of office buildings "certified" by independent rating agencies, finding that large recent increases in the supply of green buildings and the unprecedented volatility in property markets have not significantly affected the relative returns to green buildings. Second, we analyze a large cross section of office buildings, demonstrating that economic premiums in rent and asset values are substantial. Third, we relate the economic premiums for green buildings to their sustainability, confirming that the attributes rated for both thermal efficiency and sustainability contribute to premiums in rents and asset values. Even among green buildings, increased energy efficiency is fully capitalized into rents and asset values.

This paper analyzes how the dynamics of house prices are affected by the option to rebuild or enlarge existing dwellings. The nonlinear functional form for option value and zoning limits provides identification of changes in option value over the cycle. For homes with high development potential, our results show that about 40% of the price increases during the boom years after the fall of the Berlin Wall were related to increased option value. In the subsequent bust about 50% of their price decline was associated with decreased option value. For dwellings with low redevelopment potential 12% of the decline in real value can be attributed to changing option value.

This paper examines the long run relation between prices and rents for houses in Amsterdam from 1650 through 2005. We first demonstrate that these series are cointegrated, a necessary condition for studying movements of the rent-price ratio. We then estimate the deviation of house prices from fundamentals and find that these deviations can be persistent and long-lasting. Lastly, we look at the feedback mechanisms between housing market fundamentals and prices, and find that market correction of the mispricing occurs mainly through prices not rents. This correction back to equilibrium, however, can take decades.

This paper investigates the effects of the energy efficiency and sustainability of commercial properties on the operating and stock performance of a sample of US REITs, providing insight into the net benefits of green buildings. We match data on LEED- and Energy Star-certified buildings with detailed information on REIT portfolios and calculate the share of green properties for each REIT over the 2000-2011 period. We estimate a two-stage regression model and document that the greenness of REITs is positively related to three measures of operating performance - return on assets, return on equity and the ratio of funds from operations to total revenue. We also document that there is no significant relationship between the greenness of property portfolios and abnormal stock returns, suggesting that stock prices already reflect the higher cash flows deriving from investments in more efficient properties. However, REITs with a higher fraction of green properties display significantly lower market betas.

Real estate investment trusts (REITs) offer a natural experiment in corporate governance due to the fact that they leave little free cash flow for management, which reduces agency problems. We exploit a unique and leading corporate governance database to test whether corporate governance matters for the performance of U.S. REITs. We document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies and a control sample of firms with high corporate real estate ratios, we find a strong and significantly positive relation between our governance index and several performance variables, indicating that the partial lack of a relation between governance and performance in the real estate sector might be explained by a REIT effect.

We analyze the occupancy of green office buildings by firms and their industrial characteristics, identifying those firms and industries which have the highest occupancy in green buildings. We form...

∗∗∗ ∗∗∗ This article investigates the magnitude and determinates of share liquidity over the 1990–2007 period in the world’s four largest securitized real estate markets: the United States, the United Kingdom, Continental Europe and Australia. We document a significant and consistent role for market capitalization, nonretail share ownership and dividend yield as drivers of liquidity across markets. We also document significant differences in liquidity across countries and between property and nonproperty companies. Also striking is the lack of correlation among our three measures of liquidity across property firms and time. This supports the notion that share price liquidity is multifaceted and therefore reliance on any one measure of liquidity in empirical work may produce misleading conclusions. Although we find some evidence of a connection between liquidity and firm value, it is less conclusive than prior studies.

This paper examines the impact of option trading on individual investor performance. The results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading. We attribute the detrimental impact of option trading on investor performance to poor market timing that results from overreaction to past stock market returns. High trading costs further contribute to the poor returns on option investments. Gambling and entertainment appear to be the most important motivations for trading options while hedging motives only play a minor role. We also provide strong evidence of performance persistence among option traders.Keywords: Option trading; Individual investor performance; Investor sentiment; Performance persistence; Internet brokerageJEL classification codes: G11; G12; G14; G24