Resumen de Essays on real estate finance
In this dissertation, I present three chapters on real estate finance. Specifically, I study investment in real estate assets and how owning real estate assets affect various corporate financing decisions.
In the first chapter, titled ``Payout Policy and Real Estate Prices'' we study the impact of real estate prices on the payout policy of firms. Firms use corporate real estate (CRE) assets as collateral to obtain debt. Through this collateral channel, positive shocks to the value of CRE assets allow firms to increase their leverage in order to finance not only investments but also payouts. We find that an increase in the value of CRE assets results in an increase in cash dividends and share repurchases. These effects are stronger in periods of increasing values of CRE, as well as for firms with few investment opportunities and low leverage. We also find that firms that experienced positive shocks to the value of their CRE assets smooth their dividends more.
Second chapter, titled Riskiness of Real Estate Development: A Perspective from Urban Economics & Option Value Theory revisits the popular wisdom that investment in real estate development is riskier than investment in stabilized property assets. We define and empirically estimate a new construct for urban economic analysis, the Development Asset Value Index (DAVI) which explains how rational investors and builders exercised the land (re)development option. Comparison of DAVI with Property Asset Price Index corrected for depreciation (PAPI) reflects the realized value of timing flexibility in land development. We find that the DAVIs display greater value growth and are smoother and less cyclical than their corresponding PAPIs. This suggests that development may be riskier than stabilized property investment only due to leverage effects. We also find that development density (Floor/Area Ratio) is an increasing function of the location value.
Third chapter titled Does Corporate Real Estate Value Matter for Stock Returns? studies the effect of owning corporate real estate (CRE) assets and change in the market value of CRE assets on firms stock returns. We show that a positive shock in the value of CRE assets positively affects stock returns of real estate owning firms. We further document - real estate based stock return comovement - that is, stock returns of firms which either experience increase in their pledgeable collateral, or own higher proportion of CRE assets, or both comove with each other and this comovement is cyclical in nature. We also find that the degree of comovement is higher in the periods of increasing values of CRE assets, as well as for firms that are financially constrained and headquartered in the same geographical area.
