A property’s location is often considered to be the ultimate determinant of its investment performance. But how exactly does a property’s location influence its risk and return? The authors focus on the effects of location density on the risk and return of commercial real estate investments. They do this by studying the geographical characteristics of the property portfolios of U.S. equity REITs. The paper shows that REITs with property holdings in high-density locations experience higher NOI growth, earn higher risk-adjusted returns, and carry higher systematic risk than their otherwise comparable peers in low-density locations. Those high-density REITs also have lower leverage, better access to public bond markets, and lower implied cap rates. Their results suggest that location density is an important determinant of REIT performance outcomes and financing choices, consistent with geographical characteristics playing a significant role in driving patterns of investment risk and return across commercial real estate markets.
The aim of this seminar series is to bring together people from academia and industry interested in the latest real estate research. In this series of bi-weekly presentations, we invite papers from scholars who would like to present their ongoing work. Presentations will be 25 minutes long, followed by 25 minutes for the Q&A session. Junior researchers, students, and practitioners are very welcome to take part.