Mastering the metropolis through research and thought leadership.
Working Papers

REIT Financing Choices: Preparation Matters

Working paper #786
Andrey D. Pavlov, Eva Steiner and Susan M. Wachter

Sun, Titman, and Twite (2015) find that risky capital structure characteristics, such as high leverage, high share of debt due in the near future and high share of variable-rate debt, significantly reduce the cumulative total returns of US REITs over the 2007-2009 financial crisis. In this paper we show that preparing ahead of the crisis significantly influenced the cumulative return over the crisis period even when controlling for the levels at the start of the crisis. Specifically, we document that REITs which reduced leverage and increased maturity prior to the crisis fared better during the crisis. For instance, one standard deviation reduction in leverage generated five percent higher cumulative return during the crisis. We further find that US REITs with the highest capital structure risk (high leverage and short maturities) were more likely to take precautions by reducing leverage and extending maturity. This effect is especially large for REITs with strong governance. We also document that none of our findings hold for European REITs. This suggests that since European firms did not experience or observe the levels of market excess that occurred in the US before the crisis, whether they took precautions or not had no impact on their returns during the crisis

Download full paper · 1MB PDF

In This Section
Explore Topics

1010 Affordable Housing Amazon Amenitization Architecture Artificial Intelligence Asia Australia automation Autonomous Vehicles bonds Borrowing Constraints Brexit California Canada Capital Business China Co-Working Environment coastal markets cold storage Colombia Commercial Brokerage Commercial Real Estate commissions Congestion consumer bias covid-19 CRE credit card market Credit Default Swaps Credit Insurance Credit Risk Transfers Culture Data Analytics data centers Data Collection Technology Debt Market Demand Demographics Density Development Discrete Choice disruption Diversity drones e-Commerce Economic Corridors economic policy economics education election studies Equity Funds Equity Market Ethnic Factors Europe Fannie Mae financial asset management Foreclosures Foreign Policy France Freddie Mac general equilibrium Global global economy Global Financial Crisis Globalization great depression Great Recession healthy buildings Hedonic hospitality Housing & Residential housing boom Housing Disease housing prices Housing Supply Identity Income Inequality India inflation Inter-generational mobility interest rates Investing jobs labor market Lagging Regions land use regulation Language life sciences Macroeconomics malls Market Pricing megacities Microeconomics Migration Minimum Payments Mixed-Use Mobility moral hazard mortgage insurance mortgage market Mortgage Rates Mortgages Multi-family Nation Building Non-Traditional Mortgages Office Market office sector pension funds Placed Based Policies Political Risk Price Discovery Private Equity Business public health public policy Public Schools real estate brokerage Real Estate Investment Real Estate Investment Trusts Recession Rental Retail Retirement reverse mortgages Risk Adjustment risk management risk-shifting robotics single family housing Slums Sorting South America Spatial Regions spillover effect stimulus package Sub-Prime Mortgages Supply Chains Sustainability Technology telecommunications trade transportation unemployment United States Urban Urbanization Warehouse welfare work from home