Daniel E Huerta

This paper proposes an experiential pedagogical exercise that allows finance and real estate students to assess the financial viability of a net-leased, single tenant standalone retail property located in a major metropolitan area. This exercise provides students with the opportunity to complement their classroom/textbook instruction with a real-life practical application of the concepts and mathematical skills they have acquired. To complete the case study, students receive an investment prospectus and an assignment protocol that lays out the data and supporting information necessary to value the property and produce an investment thesis. The successful completion of this assignment ensures student competence in valuing commercial real estate using qualitative and quantitative methods which are analytical skills that are readily transferable to the workplace.

This paper investigates the relationship between CEO and top executive ownership and the choice between secured and unsecured debt financing. Although prior research has found that debt structure affects agency costs and firm value, the relationship between executive ownership and debt preferences remains open to debate. We find that an increase in executive ownership results in a higher percentage increase in the use of secured debt, which may be attributed to the managerial effort-enhancing behaviour that results from collateralized debt. Additionally, we find that firms in financial distress tend to rely more heavily on secured debt. Our results contribute to understanding how managerial incentives influence capital structure decisions and the determinants of debt security choices.

This paper examines how executive stock ownership influences the choice of debt structure,
investigating whether institutional owners moderate the relationship between the level of executive ownership and the decision to use public versus private debt. Our findings suggest that firms
with higher levels of executive ownership tend to employ significantly more public debt financing
to potentially reduce the monitoring intensity of their managerial decisions. However, we also
find that oversight by motivated and longer-horizon institutional investors prevents firms from
avoiding the more stringent monitoring associated with privately held debt. Further tests indicate
that the link between CEO and executive ownership levels and the preference for public debt is
more pronounced in smaller firms, which typically experience higher levels of information
asymmetry. Our findings align with the monitoring avoidance hypothesis and the informational
asymmetry hypothesis.

Selecting which geographical markets a REIT serves is an important managerial decision that is expected to significantly impact firm performance. This paper investigates whether holding properties in areas with greater incidence of evictions impacts REIT operational efficiency. Using a comprehensive database of eviction lawsuits in the United States in combination with a time-series of residential REIT portfolio holdings, we construct REIT-year eviction exposure scores to analyse whether more exposure to areas with high aggregate eviction rates is a risk factor affecting REIT efficiency. We posit that market-level tenant default risk captures a locational risk dimension that should be considered in REIT portfolio management. Our results show that REITs with more exposure to markets with high tenant default risk observe higher operational inefficiencies after controlling for relevant firm characteristics and local market factors. These results are robust to multiple model specifications that control for potential endogeneity and omitted variable biases. Our findings have significant implications for REIT managers and investors, suggesting that the choice of property locations should consider aggregate tenant default risk as a determinant factor in residential REIT performance.

Purpose This paper aims to investigate the effect of the COVID-19 pandemic market shock on house pricing, time-on-market (TOM) and probability-of-sale functions using local multiple listing service data from Richmond, Virginia, USA. Design/methodology/approach The empirical analyses use a two-stage residual inclusion model to simultaneously address endogeneity and nonlinearity in modeling sales price and TOM, and a Heckman two-stage procedure to account for sample selection bias in estimating the probability-of-sale. Findings The pandemic shock not only directly impacted average home prices, TOM and probability-of-sale, but it also caused the coefficients of some of the factors that influence these metrics to change while others were stable to the exogenous shock of the pandemic. The authors find that coefficients in the hedonic pricing, TOM and probability-of-sale models did not shift instantaneously; instead, the impact evolved over several months at the beginning of the pandemic until stabilization. Originality/value The results should be of interest to buyers and sellers of residential properties, agents specializing in residential properties and researchers looking to better capture the impact of exogenous events on housing prices and buyer preferences.

•The impact of triple-net leased (NNN) property portfolios on REIT operational efficiency is examined.•REITs holding NNN portfolios are more operationally efficient than their counterparts.•The utilization of NNN leases contributes to REIT operational efficiency which is a channel to higher REIT performance and value.•Employing triple-net leases in REIT portfolios shifts the property operating burden to the tenants, significantly reducing the complexity of operations allowing better control of operating costs. Triple-net leases are legal agreements by which tenants, beyond rent payments, are responsible for operating expenses such as real estate taxes, insurance, and maintenance costs. We examine the relative operational efficiency of Real Estate Investment Trusts (REITs) holding property portfolios consisting of majority triple-net leases. Results suggest REIT holding triple-net leased portfolios are more operationally efficient than their counterparts. Our results suggest that selecting proper lease expense provisions specifying who carries the obligation of operating expenses is a determining factor of REIT operational efficiency.

Conditioned geographical clustering is the strategy of grouping portions of a REIT’s property portfolio within a contiguous region to exploit economies of scale through spatial proximity. This paper examines the impact of conditioned geographical clustering on REIT operational efficiency and value. Our results suggest REITs create value by employing a strategy of property clustering and that operational efficiency is the primary channel through which increases in value are achieved. In addition, results suggest conditioned geographic clustering mitigates the REIT geographical diversification discount. Our findings support an optimal degree of property clustering within the 5th to 35th percentiles of the sample distribution and suggest the optimal cluster size has a radius between 50 and 75 miles.

Triple-net lease (NNN) agreements require tenants to pay all property operating expenses in addition to rent and utilities. These expenses include real estate taxes, insurance, and maintenance, significantly relieving the landlord of a property’s operating burden. Given that much of the property’s operating responsibility rests with the tenant, NNN leased properties collect comparatively lower rents than those with conventional leases or other net leases that corresponds to the lower amount of risk assumed by the property owner. Extant literature provides little evidence on the impact of holding triple-net leased property portfolios on Real Estate Investment Trusts (REIT) performance. In this paper, we examine the relative performance of Equity REITs holding NNN leased property portfolios and the relationship between REIT NNN property portfolios and firm operational efficiency, profitability, and value. We believe this examination is relevant given the nature of REITs as pass-through identities designed to pay out 90% or more of earnings as dividends where the goal of the REIT manager is to efficiently and profitably operate real estate assets. We explore whether the strategy of holding NNN portfolios improves or sacrifices REIT performance and shareholder value.

Conditional geographical clustering is the strategy of grouping real estate properties within a contiguous region to exploit economies of scale through spatial proximity. We expect significant benefits from this strategy as a result of gains in local market expertise and cost reductions associated with improved operational performance from the efficient management of a portion of a Real Estate Investment Trust (REIT) property portfolio. This strategy differs from both geographical diversification and agglomeration strategies. Geographical diversification is the strategy of acquiring properties in distinct geographical markets as to take advantage of the diversification effect of the differing economic conditions in the multiple markets. However, managing a property portfolio that is geographically disperse may pose challenges such as lack of expertise in the multiple markets, difficulty in property monitoring, lower management efficiency, and higher agency costs. Prior literature finds REIT geographical diversification either destroys firm value or has little to no benefit. Ambrose, Ehrlich, Hughes, and Wachter (2000), Capozza and Sequin (1998, 1999), Gyourko and Nelling (1996), and Demirci, Eichholtz, and Yonder (2020) find either no, or limited, evidence of economic benefits. Whereas, Campbell, Petrova, and Sirmans (2003), Cici, Corgel, and Gibson (2011), Cronqvist, Hogfeldt, and Nilsson (2001), and Hartzell, Sun, and Titman (2014) present results that indicate discounts in value for geographically diversified REITs. More recently, Feng, Pattanapanchai, Price and Sirmans (2019) find geographical diversification benefits arise for REITs with high levels of institutional ownership and which invest in core property types. Agglomeration, on the other hand, refers to the strategy of locating properties near concentrations of economic activity such as in areas of fast economic growth or areas where similar properties owned by other firms are located. Prior literature explains agglomeration economies benefits firm productivity and provides positive externalities (Henderson 1986; Henderson 2003; Rosenthal and Stranges 2008; Melo et al., 2009; Greenstone et al. 2010; Koster et al. 2014) which may explain the concentration of REIT properties in certain U.S. markets. However, agglomeration generally refers to the location of properties neighboring other properties that are not owned by the REIT.

In this paper, we examine the impact of conditional geographical clustering on REIT operations and firm value. Specifically, we test whether a strategy of property clustering translates into improved efficiency and performance that may impact REIT firm value and stock returns. That is, we explore channels through which conditioned geographical clustering contributes to REIT shareholder wealth. Such channels include operational efficiency, operational performance, and credit risk.

We contribute to the literature by measuring the optimal REIT cluster size (in terms of number of property units) and distance (in terms of amplitude of radii) by property-type specialization. This analysis provides REIT managers with indications of if property clustering is an effective strategy for all REIT specializations. Moreover, for those property-types for which clustering matters, our results provide guidance on the optimal proportion of the portfolio that should be clustered and the size of the cluster that will provide most benefit. The analysis by property-type specialization is of particular importance since each property sector has unique characteristics, distinct demand and supply drivers, and responds to economic factors in different ways. Each REIT asset class signifies a distinct business line with different economic sensitivities and which calls for a particular investment strategy that corresponds to the idiosyncrasies of the property type. Prior literature highlights the importance of property-type specialization segmentation in REIT studies finding, for example, that specialized REITs show varying degree of business cycle exposure, tend to have distinct levels of correlation with the economy, show markedly dissimilar capital structures, varying risk-return characteristics and deviations from net asset value, and are prone to different pricing anomalies (Wheaton, 1999; Reddy and Cho, 2018; Van Nieuwerburgh, 2019; Huerta et al., 2020).

This paper describes the pedagogical approach of incorporating a Real Estate Investment Trust (REIT) module in an undergraduate finance major capstone course at Florida Gulf Coast University, a regional comprehensive 4-year university. The module consists of two class periods and requires research of publicly-traded REITs using industry accepted sources of data, empirical and qualitative data analysis, and preparation of written and oral presentations that receive academic and practitioner feedback. The assignment aligns with experiential learning theory and the constructivism learning theory found in research in that it incorporates experiencing, reflecting, thinking, and active learning combined with the participation of guest speakers and judges who serve as external validators enhancing the student classroom experience.