The Role of Tenant Characteristics in Retail Cap Rate Variation* (with Stacy Sirmans, Greg Smersh and Tingyu Zhou) . Journal of Real Estate Finance and Economics (2023). 

This study examines the variation in cap rates for single tenant net lease (STNL) properties. Despite an abundant literature on micro- and macroeconomic factors that influence capitalization rates, little is known about tenant and location-specific risk pricing, especially for smaller, single-tenant commercial properties. Using a unique dataset of more than 8,200 single-tenant retail property transactions from 2005 to 2019 in the United States, we quantify the risk associated with tenant characteristics, including the listing status of the parent company, ownership structure, default risk, and industry type. Our results show that these tenant characteristics play an important role in explaining cap rate variations. 

*We are grateful to the Real Estate Research Institute for funding this research. An earlier draft of the paper is available through RERI. 

Spread Too Thin: REIT Asset Dispersion and Divergence of Opinion (with Stace Sirmans and Stacy Sirmans), Journal of Real Estate Finance and Economics (2022),

In this paper we explore the drivers and implications of divergence in investor opinion of firm value. We use dispersion in analyst estimates of Net Asset Value in REITs as a measure of divergence. We find that divergence in opinion of value is positively associated with portfolio geographic diversity, the presence of international buildings, and firm leverage. Portfolio concentration in tertiary versus gateway markets has no effect on dispersion of value estimates. We find that greater divergence in analyst opinion of value predicts lower stock returns and higher return volatility. Consistent with theoretical predictions from Miller (1977), we find that firms for which investors have the highest disagreement on valuation, pessimistic views of investors are not fully incorporated into prices, resulting in lower future returns.

Mortgage Relief: Who CARES? (with Meagan McCollum), Journal of Housing Research (2022)

Abstract: The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides mortgage forbearance relief to qualifying borrowers, whose loans are placed in a government backed mortgage pool. We analyze the effects of being ineligible for the program by examining the aftermath of the same requirement in the Home Affordable Refinance Program (HARP). Using a comparable sample of borrowers with Freddie Mac loans and privately securitized loans (Bbx) we compare loan performance and quantify potential wealth, consumption, and credit consequences for prime borrowers whose loans were placed in private securitization pools and who were thus ineligible for a government relief program. We show that restricting modification benefits to include only borrowers in federally backed mortgage pools results in significant loss in wealth (through reduced prepayment and increased default) for those otherwise similar borrowers whose loans are placed outside of GSE pools. The greatest detriment is documented in CBSAs with the largest housing price declines.

Betting Against the Sentiment in REIT NAV Premiums,  (with Stace Sirmans and Stacy Sirmans), Journal of Real Estate Finance and Economics (2021)  

Abstract: We examine the composition of REIT Net Asset Value premiums to stock prices. We  find that nearly 58% of NAV premiums are explained by observable company fundamentals. The proportion of NAV premiums explained by REIT fundamentals is primarily driven by size, market share, growth and low leverage. NAV premiums unexplained by fundamentals are related to the level of company opacity and investor sentiment. High fundamental premium REITs outperform low fundamental premium REITs, and the results reverse for unexplained premiums, where low sentiment premium REITs have the highest performance. A portfolio based on low sentiment premiums yields the greatest results, of nearly fourteen percent per annum.

Agree to Disagree: NAV Dispersion in REITs (with Stace Sirmans and Stacy Sirmans) Journal of Real Estate Finance and Economics 

Abstract: This is the  first study to analyze REIT Net Asset Value analyst coverage and dispersion.  We find that NAV analyst coverage has a positive relationship with REIT value and a negative relationship with REIT volatility. Subsequently we analyze NAV analyst estimate dispersion and find that it has a positive relationship with REIT leverage and volatility. We break down our sample by property type and find that retail REITs have the greatest NAV coverage and hospitality REITs have the greatest NAV analyst dispersion. Finally, we compare the significance of NAV forecast dispersion to earnings (FFO) forecast dispersion. We find that NAV dispersion has a significant negative relationship with REIT value whereas FFO dispersion is not found to have a significant relationship.

Location Choice, Life Cycle and Amenities (with Hyoung Suk Shim)  Journal of Regional Science (2019) 

Abstract: Our study proposes a housing location choice model where a household faces a trade off  between proximity to their place of employment and proximity to amenities. We use the 2009 national household travel survey (NHTS) to test the predictions. We consider subsamples of high amenity cities and low amenity cities as well as households with and without children. We show that the roles of gender, education, homeownership, household composition and public transportation vary significantly depending on level of amenities. Households with a female head of household, those with a working spouse and with older children prefer locating closer to downtown amenities.  Higher educated workers locate closer to work in lower amenity cities. We provide further evidence that female workers locate closer to work, in households with and without children in both high and low amenity cities.

The Cost of Debt for REITs:  The Mortgage Puzzle (with Linda Allen)  Journal of Real Estate Research (2020)

NAREIT Manuscript prize recipient for research on Real Estate Investment Trusts, ARES 2016 

Abstract: Established, low-leverage equity REITs with access to the public debt market rely on both non-recourse mortgages and full recourse bonds/notes as sources of long term debt. Interest rates on secured, non-recourse debt (mortgages) include a costly strategic default option premium and do not benefit from a firm’s overall financial capacity. We find that use of non-recourse, mortgage debt is more likely for longer term, smaller borrowings, and during recessionary periods, consistent with REITs valuing financial flexibility in their capital structure. The higher rates for property level debt suggest a benefit to REITs versus single asset investors in terms of cost of capital. Since REITs also access debt at the corporate level, the spread between long-term non-recourse debt and long-term recourse debt implies a benefit to the REIT structure.  

Explaining REIT Returns (with Stace Sirmans, Stacy Sirmans and Emily Zietz) Journal of Real Estate Literature (2019)

The popularity of REITS as an investment vehicle and the current record breaking performance of the stock market in the U.S. have triggered an increased interest in understanding how REITS perform relative to other investments.  Numerous research studies have examined whether REITs behave like stocks and bonds and have worked to identify factors that impact the returns of REITS as an investment option.  Many of these studies have examined the asset pricing structure of various assets, including REITs, to identify predictive information useful for investors.  This study organizes this literature into five categories and provides summary information on each area.  The categories examined are: (1) valuation models and REIT returns, (2) REIT return volatility, (3) REIT returns and asset growth, (4) the impact of financial leverage on REIT returns, and (5) REIT returns and investor sentiment.  Results across the literature are aggregated on these critical topical areas into a consistent framework highlighting findings that are useful in explaining the behavior of REIT returns.  

Under the Lender's Looking Glass (sole authored)  Journal of Real Estate Finance and Economics (2017)  55: 435 

Abstract: This paper studies the impact of bank monitoring on the risk of US equity REITs. Using a unique, hand-collected data sample of mortgage balances, I show that bank screening and monitoring of REIT assets via utilizing secured mortgage financing (vs unsecured, public debt) lowers the overall company risk of a REIT. At the asset level, screening results in retail and office assets with higher acquisition values and located in primary markets, i.e., more transparent assets, being pledged as collateral. Further, I find evidence consistent with the role of lender monitoring for secured mortgage loans and show that properties located in closer proximity to a REIT’s headquarters are more likely to be pledged as collateral for a mortgage.

Calendar Anomalies: Do REITs Behave Like Stocks? (with Su Han Chan and Mehmet Akbulut) International Real Estate Review, 2015 Vol. 18 No. 1: pp. 177 – 215 

Abstract: This study addressees the unsettled question of whether REITs behave similarly to stocks with respect to calendar anomalies. We determine the magnitudes of several types of calendar anomalies for both the REIT and stock market index returns in 22 countries between 1990 and 2012. In general, our evidence shows that the calendar effects are not universal across countries and that REITs behave differently from their stock counterparts in a number of countries. The difference in behavior is especially evident around the turn of the month where REITs exhibit significantly higher returns than general stocks in the global sample as well as in 7 of the 22 countries examined. This result may possibly be linked to the higher level of institutional ownership in REITs than in stocks in their corresponding market during the period examined.

Sale Lease Back Transactions and the Cost of Debt (with CF Sirmans) Working Paper

Abstract: We examine the change in cost of debt in response to Sale Lease Back transactions, primarily of corporate headquarters, and consider the reallocation of wealth between debt holders and share holders. We  find evidence for a theoretical prediction put forth by Kim et al. (1978), that lender and shareholder reactions to Sale Lease Back transactions would be asymmetrical. Using a hand collected data set of Sale Lease Back transactions and individual loan data from S & P Capital IQ, we find that lenders demonstrate a preference for real estate holdings on balance sheet vs greater liquidity coupled with a lease liability. The results are robust to controls for company characteristics, default risk and macroeconomic conditions. Finally we use a two stage analysis to proxy for potential endogeneity and find that the results are robust.

Tax Avoidance and Cost of Debt (with Cathryn Meegan and Miles Romney ) Under Review 

Abstract: We show that managers can lower corporate borrowing costs by adjusting effective tax rates. We rely on a theoretical framework that specifically prices default risk to establish that tax avoidance may serve as a signal of firm financial health. We use a dataset of secondary market bond trades to examine how bondholders price this signal and document a U-shaped relation, where debtholders reward tax avoidance for “undersheltering” firms up to an optimal point, beyond which they penalize overly tax-aggressive firms. As firms move toward high and low tax rate extremes, their cost of debt increases. Additionally, we show that while the U-shaped relation is robust to industry and size adjustments, the numerical range of effective tax rates corresponding to lowest borrowing costs varies greatly by industry. We show that managers can lower their cost of debt by 0.99% on average by benchmarking their firm’s tax avoidance against their industry peers.