This is the first paper to examine how the COVID-19 shock transmitted from the asset markets to capital markets. Using a novel measure of the exposure of commercial real estate (CRE) portfolios to the increase in the number of COVID-19 cases (GeoCOVID), we find a one-standard-deviation increase in GeoCOVID on day t-1 is associated with a 0.24 to 0.93 percentage points decrease in abnormal returns over 1- to 3-day windows. There is substantial variation across property types. Local and state policy interventions helped to moderate the negative return impact of GeoCOVID. However, there is little evidence that reopenings affected the performance of CRE markets.

Using a sample of Real Estate Investment Trusts (REITs), we show that institutional investors exploit location‐based information asymmetries by overweighting firms headquartered locally and those with greater economic interests in the investor's home metropolitan statistical area (MSA). This asset allocation strategy is associated with superior portfolio performance. In a difference‐in‐difference‐in‐differences analysis of investor headquarters relocations, we find that investors tend to increase their ownership of REITs that have property holdings in the market to which the investor relocates. Our findings highlight the importance of understanding the relation between information advantages and the geography of firm's operations, as well as the implications on ownership patterns and portfolio construction.

An extensive literature finds that indices of returns on equity real estate investment trusts (REITs) predict return indices in the private commercial real estate (CRE) market. Using a novel geographically weighted proxy for the quarterly performance of the property types within the local markets in which an REIT is invested, or property portfolio return (PPR), we find a “private predicts public” result in a cross‐sectional, firm‐level context. This finding suggests that geographically dispersed information and investors’ limited attention can delay timely stock price adjustments. Our findings also suggest that it is the diffusion of information about “local” price changes, rather than local supply elasticities, regulatory constraints, the degree of local information risk, current rental income, or local liquidity that predicts REIT returns. The PPRs associated with REIT allocations to major “gateway” markets are more predictive of REIT returns than the PPRs produced by allocations to secondary and tertiary markets. This study improves our understanding of the speed at which “local” information about the perceived productivity of a firm's assets is capitalized into stock prices.

This paper contributes to the ongoing debate about whether and how institutional common ownership (ICO) affects firm behavior. Using a sample of equity real estate investment trusts (REITs), which provide significant advantages for isolating a monitoring channel, we find a robust and positive relation between ICO and REIT firm value. The positive relation between ICO and firm value is driven mainly by motivated investors and becomes stronger when we construct our ICO measures using blockholdings. Our difference‐in‐differences analysis, using mergers between institutional investors, suggests a causal relation exists between ICO and firm value. After investigating various channels through which ICO could affect firm behavior, we conclude that asset allocation decisions and performance are the most plausible explanations. Our finding that the monitoring associated with ICO aids managers in their portfolio disposition strategies further supports this conclusion. This enhanced monitoring leads to increased property portfolio returns, as well as more geographic diversification.

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We study the impact of face‐to‐face (FTF) interactions on commercial real estate (CRE) performance. By linking tenants, properties, and CRE firms, we construct three novel FTF measures that capture tenant remote working, internal communication between coworkers, and external contact with customers. Using the COVID‐19 pandemic as an exogenous shock to the FTF economy, we find that firms holding properties with tenants that are more resilient to social distancing perform better. These FTF effects weaken over the long term, however. As investors are capable of compiling valuable information at granular levels regarding how tenants operate, our findings support market efficiency and shed light on postpandemic CRE performance.

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