Academic Real Estate Research from the UF Warrington School of Business came out of a cannon to start 2021. Real Estate Economics, arguably the most prestigious academic real estate journal, presented four distinct articles in its first two issues that were co-authored by David Ling. Publishing four articles across two issues of a top academic journal is not like throwing four touchdown passes in an NFL game. It is like a defensive lineman intercepting four passes and returning each of them for a touchdown. It is a remarkably rare event.
In addition to serving as the Director of the Nathan S. Collier — Master of Science in Real Estate program and teaching both undergraduate and graduate students at the University of Florida, Professor Ling is an extremely productive contributor to the academic literature. In addition to Real Estate Economics, he has published in numerous economic, finance, and real estate journals. He is an expert in a wide range of topics from investment taxation to fund operations to public REIT performance, as well as other real estate areas. We all should appreciate his body of work, and specifically his accomplishments so far this year. Below is a very brief description of each of the articles published in the Spring 2021 issues of Real Estate Economics.
There is no place like home: Information asymmetries, local asset concentration, and portfolio returns
David C. Ling, Andy Naranjo and Benjamin Scheick
Previous studies document that typical investors will over-weight local investments at the expense of better diversification. It was unclear if this concentration of local assets was the result of better information about nearby assets or if this was the result of a simple familiarity bias. The former explanation will lead to enhanced performance and the latter will lead to no performance benefit and only increased risk due to reduced diversification.
Using property location data from 111 equity REITs headquartered in 34 different markets, this paper demonstrates that local investment concentration is the result of an active choice to take advantage of informational advantages. It further clarifies that local concentration leads to improved performance beyond strict risk-based performance. In this case, local concentration provided a performance benefit over increased diversification.
Institutional common ownership and firm value: Evidence from real estate investment trusts
David C. Ling, Chongyu Wang and Tingyu Zhou
Institutional ownership of publicly traded companies can lead to a greater level of oversight compared to that of companies predominantly owned by retail investors. The general impact of institutional ownership is widely studied. Given the nature of REITs, portfolios of bulky property assets, deeper questions can be asked about the influence of common shareholders. For instance, might sophisticated institutional investors (those who invest in more than one REIT) influence the strategy and value of the REITs that they own? These authors suggest “Yes, they can.”
Analysis of more than 300 REITs over 20 years reveals that Institutional Common Ownership (ICO), investors owning shares in multiple REITs, can impact a REIT’s investment strategy and enhance its value. Motivated institutional shareholders actively monitor REIT operations improving asset allocation, diversification, and transaction decisions. The increased oversight and support lead to higher firm value for REITs with ICO.
The Geography of Real Property Information and Investment: Firm Location, Asset Location, and Institutional Ownership
David C. Ling, Chongyu Wang and Tingyu Zhou
Local investment bias, overweighting one’s hometown, can be a positive trait (better informed locally than afar) or a negative trait (artificially value home more than other locations). This study examines the impacts of REIT property concentrations in both its home Metropolitan Statistical Area (MSA) and in institutional investors’ home MSAs. The first discovery is that institutional investors favor, tend to overweight, REITs with a property overweight in the MSA where the REIT is headquartered. The second discovery is that institutional investors also favor REITs with a property overweight in the MSA where the investor is headquartered.
The third discovery from this analysis is that institutions that tilt portfolios toward REITs that are overly invested in the REIT’s own market and tilting toward REITs that are overly invested in the investor’s headquartered MSA will outperform fully diversified investors. It is striking to learn that the informational advantage of local concentration overcomes the diversification advantage of greater geographical allocation.
How do Personal Real Estate Transactions Affect Productivity and Risk Taking? Evidence from Professional Asset Managers
David C. Ling, Yan Lu and Sugata Ray
Do major personal decisions, such as purchasing a home, distract us to an extent that we perform poorly in our professional positions? Analyzing the performance of hedge fund managers leads the authors to conclude that professional performance is negatively influenced by a home purchase. Hedge funds are studied because of the influence that an individual, the manager, has on performance and because the results are transparent and frequently measured. The results are specific, but we all might consider how a personal home search and move could affect the professional focus of our vendors as well as ourselves.
After matching hedge funds managed by an individual who purchased a home to hedge funds managed by an individual who did not make a purchase and examining over a thousand events (managers buying homes), professional distraction becomes evident. Not only do home-buying managers produce lower returns following their purchase, but they also lose focus on their work activities. Distracted managers tend to reduce active management (asset turnover), become more exposed to indexed assets, and hold “losers” longer than “winners” relative to nondistracted managers and prior to making a home purchase. From this analysis, it appears that focus on major personal events negatively alters one’s professional performance.
All four of these articles can be found in Real Estate Economics: Journal of the American Real Estate and Urban Economics Association 2021, Volume 49, Numbers 1 and S1.