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How Do Firms Finance Nonprimary Market Investments? Evidence from REITs

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  • James Conklin
  • Moussa Diop
  • Mingming Qiu

Abstract

This study explores the impact of investment characteristics, mainly investment location relative to the firm's primary market, on financing choices by real estate investment trusts (REITs). Using a large sample of commercial property acquisitions, we show that REITs are 4–8% less likely to use secured (mortgage) debt when acquiring properties in their primary markets than elsewhere. The documented evidence supports a demand†side story for the relation between investment characteristics and financing. Moreover, the evidence is consistent with the hypothesis that REITs avoid mortgage financing in their primary markets to preserve operational flexibility in those markets.

Suggested Citation

  • James Conklin & Moussa Diop & Mingming Qiu, 2018. "How Do Firms Finance Nonprimary Market Investments? Evidence from REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 46(1), pages 120-159, March.
    • Handle: RePEc:bla:reesec:v:46:y:2018:i:1:p:120-159
    DOI: 10.1111/1540-6229.12212
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    Cited by:

    1. Eichholtz, Piet & Ongena, Steven & Simeth, Nagihan & Yönder, Erkan, 2023. "Banks, non-banks, and the incorporation of local information in CMBS loan pricing," Journal of Banking & Finance, Elsevier, vol. 154(C).
    2. Lingxiao Li & Bing Zhu, 2024. "REITs’ Stock Return Volatility: Property Market Risk Versus Equity Market Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 69(3), pages 452-476, October.
    3. Huerta-Sanchez, Daniel & Jafarinejad, Mohammad & Kim, Dongshin & Soyeh, Kenneth W., 2020. "Disentangling bubbles in equity REITs," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 357-367.
    4. Li, Ying & Li, Lingxiao & Zhu, Bing, 2023. "Executive Compensation and Secured Debt: Evidence from REITs," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277606, Verein für Socialpolitik / German Economic Association.

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