Securitization and the Supply Cycle: Evidence from the REIT Market

We analyze securitized equity interests in commercial property (the so-called listed REIT market), with a particular focus on the U.S. experience. We begin by observing that there is a strong negative relationship between new commercial property construction activity and the growth of the U.S. REIT...

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Bibliographic Details
Published in:Journal of portfolio management 2013, Vol.39 (5), p.134-143
Main Authors: Packer, Frank, Riddiough, Timothy, Shek, Jimmy
Format: Article
Language:English
Subjects:
Capital markets
Commercial real estate
Construction
Construction costs
Cost control
Equity
Housing
Housing prices
Hypotheses
Investments
Investors
Market penetration
Mortgage backed securities
Office space
Property values
REITs
Securitization
Studies
Supply
Time series
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Summary:We analyze securitized equity interests in commercial property (the so-called listed REIT market), with a particular focus on the U.S. experience. We begin by observing that there is a strong negative relationship between new commercial property construction activity and the growth of the U.S. REIT market. Based on this and other relevant factors, we conjecture that an important reason for the muted commercial property supply response during the early and mid-2000s was the "civilizing influence" of the REIT sector. A formal test of the conjecture suggests that the REIT market indeed moderated supply outcomes in the U.S. Relationships between the REIT market and new construction activity are generally weaker in other analyzed countries, where we attribute these findings to structural differences. We conclude that attention to structural detail is essential in order to maximize the benefits associated with creating a transparent and liquid market for securitized investment interests. [PUBLICATION ABSTRACT]
ISSN:0095-4918
2168-8656
DOI:10.3905/jpm.2013.39.5.134