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How Big of a Lemons Market is the Secondary Market for Private Equity Real Estate Limited Partnerships?

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Listed:
  • David Barker

    (University of Iowa)

  • Kiat Ying Seah

    (National University of Singapore)

  • James D. Shilling

    (DePaul University)

Abstract

We find that shares of real estate limited partnerships sell at substantial discounts to net asset values (NAV) and these discounts are influenced by factors associated with agency costs and unrealized gains. Our study builds on previous work by Barber (1996) by examining a much longer time period (1994-2013), including additional control variables, and utilizing Tobit estimation instead of OLS, which we find superior. We find much larger effects of unrealized capital gains than Barber (1996). Factors that reduce fund managers’ freedom to take actions that might reduce shareholder returns such as leverage and high dividend payments reduce discounts.

Suggested Citation

  • David Barker & Kiat Ying Seah & James D. Shilling, 2019. "How Big of a Lemons Market is the Secondary Market for Private Equity Real Estate Limited Partnerships?," The Journal of Real Estate Finance and Economics, Springer, vol. 59(3), pages 391-418, October.
    • Handle: RePEc:kap:jrefec:v:59:y:2019:i:3:d:10.1007_s11146-018-9681-0
    DOI: 10.1007/s11146-018-9681-0
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    More about this item

    Keywords

    Private equity capital; Secondary markets; Brokerage; Trading prices;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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