Investments in trophy buildings - An analysis of economic and non-economic factors

Trophy or landmark buildings are properties which possess an exclusive market position due to their architecture, size, location, or other criteria. Famous examples are the Chrysler Building in New York City, ìThe Gherkinî in London, and the Sony Center in Berlin. They are very popular investment targets among institutional investors. The reasons for their popularity are not quite clear yet: Undoubtedly landmark buildings command top rents; but due to their extremely high construction costs and purchase prices it is doubtful whether their yields are top as well. And most likely collecting trophy buildings is a matter of prestige; but under the assumption of not completely irrational investor behavior in a not completely inefficient market it is doubtful that such a ìvanity premiumî can outweigh economic disadvantages. Our paper sheds some light on the trophy building puzzle. For this we first defined the term landmark building by assembling some characteristics of well-known properties. In a second step we compared the economic and non-economic decision factors for ordinary and landmark buildings in theory and practice. We used public and private data on a sample of over 20 properties in 7 countries. As benchmarks we used IPD indices and the NCREIF Property Index. In addition we carried out a survey among 84 real estate experts. The main finding of our research is that landmark buildings show a special risk-return-profile which makes them attractive for certain types of investors. Advantages of these properties areóamong othersóa stable market value and a low vacancy risk; disadvantages are the high prices and the small number of potential buyers. Furthermore we found evidence for the prestige motive.