We conduct an analysis of public financial offerings of equity Real Estate Investment Trusts (REITs), with a focus on liability structure effects and whether or not firms target longer-run debt ratios. Our major findings are that (1) proceeds from equity offers are more likely to fund investment, whereas public debt offer proceeds are typically used to reconfigure the liability structure of the firm; (2) public debt issuers are often capital constrained and target total leverage ratios to retain an investment grade credit rating; and (3) the preoffer liability structure affects the issuance choice decision, in that firms with higher preoffer levels of secured (unsecured) debt tend to issue equity (public debt). Other notable findings are that the market for public REIT debt is integrated with the broader debt markets and that higher credit quality firms issue longer-maturing bonds. Copyright 2003 by the American Real Estate and Urban Economics Association

We examine financing, investment and investment performance in the equity REIT sector over the 1981-1999 time period. Analysis reveals significant differences between the old- REIT (1981REIT ( -1992 and new- REIT (1993REIT ( -1999 eras. The sector experienced rapid growth in the new-REIT era, primarily from firmlevel investment as opposed to new entry. Firm-level investment was largely financed by equity and long-term debt, with little reliance on retained earnings. Financing policy stabilized in the new-REIT era, and capital structures became more complex. We find that REITs provided returns over and above their cost of capital, where most of the value-added investment occurred in the new-REIT era by newer firms. Finally, we present novel evidence on IPO activity and new firm investment-investment performance relations that is consistent with Tobin's q theory of investment.Do real estate investment trusts (REITs) destroy or generate value for the shareholders? What is the relation between investment and investment performance? How do REITs finance their investments? Do financial policies of REITs mimic or depart substantially from those adopted by most firms in the U.S. stock market? How do performance relations change depending on the time period? The answers to these questions are still largely unknown, more than four decades after Congress first introduced REITs to American investors.To address these questions, we measure investment, investment performance and the financing of investment in the equity REIT sector over a sample period from 1981 through 1999. We are particularly interested in identifying differences between the relatively sleepy, slow-growth "old-REIT" era of the 1980s and early 1990s and the dynamic, high-growth "new-REIT" era that began around 1992-1993.

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Investment and liquidity management are analyzed in a sector in which firms are exogenously cash constrained and empirical estimates of Tobin's "q" provide reliable measures of investment opportunity. Across the entire sector, we document substantial realized investment as well as high investment sensitivity to "q". Investment is also sensitive to measures of financial market frictions, suggesting that constraints on retention of cash flow distort investment decisions. Liquidity is managed through dividend policy and access to short-term bank finance, in which bank lines of credit smooth variation in available cash flow and accelerate investment. Using the Kaplan-Zingales method for measuring the degree of financial constraint, we identify substantial differences between investment and liquidity management policies of firms, in which more (less) financially constrained firms in our sample exhibit high (low) investment and liquidity management sensitivity to variables that measure financial market frictions. Copyright (c) 2009 American Real Estate and Urban Economics Association.

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Neoclassical investment decision criteria suggest that only the systematic component of total risk affects the rate of investment, as channeled through the built‐asset price. Alternatively, option‐based investment models suggest a direct role for total uncertainty in investment decisionmaking. To sort out uncertainty's role in investment, we specify and empirically estimate a structural model of asset‐market equilibrium. Commercial real estate time‐series data with two distinct measures of asset price and uncertainty are used to assess the competing investment models. Empirical results generally favor predictions of the option‐based model and hence suggest that irreversibility and delay are important considerations to investors. Our findings also have implications for macroeconomic policy and for forecasts of cyclical investment activity.

Classic asset pricing is problematic as a method to assess privately held asset investment performance. We propose an alternative approach that involves adjusting the characteristics of assets constituting an index or portfolio to match the asset characteristics of a reference index or portfolio. This approach is applied to commercial real estate, where we create an index of REIT returns to compare to the NCREIF index. To enhance comparability, return indices are adjusted for partial-year financial data, leverage, asset mix and fees. Adjusted results over a 1980-1998 sample period show general convergence between the indices, although an annual return difference of over three percentage points remains in favor of public market asset ownership. Possible causes of the investment performance gap include liquidity and geography as missing risk factor adjustments, an unrepresentative sample period, and the form in which commercial real estate assets are held.Analysts often use asset pricing models to measure investment performance and to compare individual stocks or portfolios of exchange-traded securities. The classic single-factor capital asset pricing model (CAPM) is an example. In this model an estimated beta characterizes priced risk and determines predicted investment performance. Performance assessment occurs by comparing actual returns to predicted returns. Asset pricing models are also useful to compare investment characteristics and performance across financial assets. For instance, performance is often compared to a risk-adjusted reference portfolio or index to assess whether a fund manager was lucky or good when excess investment returns are realized.Comparative performance assessment using a classic asset pricing approach can be inappropriate in a private market setting, however. Consider the case of commercial real estate. Privately held commercial real estate assets are often nontraded for extended periods and are sufficiently unique as to make value estimation difficult. A further complicating factor in comparing returns is the

This paper considers how the potential for mixing uses and redevelopment impact property value. Operating flexibility of this type is found to significantly increase property value when the correlation between payouts from different property types is low or when redevelopment costs are low. The ability to mix uses and redevelop over time is also shown to affect the timing of initial land development. The shape of the development boundary is shown to differ considerably depending on whether marginal revenue is constant or decreasing to scale. Both policy and empirical implications concerning the effects of multiple-use zoning are discussed. Copyright American Real Estate and Urban Economics Association.