Buyers in commercial real estate markets often pay different prices for comparable properties. We document that distant commercial real estate buyers pay, on average, a premium relative to local buyers, controlling for individual property characteristics as well as time fixed-effects. We test the extent to which the sources of these observed premiums are a product of higher search costs/information asymmetry problems associated with distance (search cost channel) or a result of reference-dependence preference/anchoring based on the price levels in the investors' home market (behavioral biases channel). Our results employing 114,588 industrial, multi-family and office sale transactions during 1997-2011 suggest the observed price premiums are explained by distant investors who face higher search costs and are at an information disadvantage compared to investors located in closer proximity to the property. In contrast, anchoring plays a more muted role in explaining the observed premiums. These results are robust to econometric techniques that control for potential unobserved property characteristics that are correlated with investor attributes. We also test the extent to which informational intermediaries affect the observed premiums and find that the use of a broker increases the acquisition prices of buyers and decreases the disposition prices of sellers. This result is consistent with the incentive real estate agents have to convince sellers to dispose of their properties too quickly and to convince buyers to search less and therefore pay higher prices.

Corporate governance, Mergers, Corporate control, Real Estate Investment Trusts,

Mergers, Privatization, Corporate control, Real estate investment trusts,

This study examines the strategic characteristics and shareholder wealth effects of a popular vehicle for Real Estate Investment Trust growth in the 1990s: the acquisition of a portfolio of properties from a single seller. We examine a sample of 209 REIT portfolio acquisitions during 1995-2001. We observe a wide variety of financing strategies and find an array of different categories of sellers. Contrary to results reported in real estate transactions of this sort in the past, we find that announcement-period shareholder returns are significantly positive in the aggregate. We present evidence that excess returns to acquirers result from (1) wealth benefits received when companies reconfirm their geographical focus in the acquisition, (2) positive information conveyed by the use of project-specific private debt and (3) a positive signal sent to the market when transactions are financed by stock privately placed with financial institutions. Copyright 2003 by the American Real Estate and Urban Economics Association