DAvid Ling - Profile on Academia.edu (original) (raw)

Papers by DAvid Ling

Climate Change and Commercial Property Markets: The Role of Shocks, Retail Investors, and Media Attention

Social Science Research Network, 2023

Value Implications of REITing and De-REITing*

The Journal of Real Estate Finance and Economics

Value Implications of REITing and De-REITing

SSRN Electronic Journal, 2019

We explore the determinants and value implications of publicly traded real estate companies conve... more We explore the determinants and value implications of publicly traded real estate companies converting to real estate investment trusts (REITs), which we term REITing, and publicly-traded REITs giving up their REIT status, termed de-REITing. Non-REIT real estate firms that pay relatively high dividends and have high income tax ratios are more likely to convert to a REIT; while REITs that have lower pretax incomes, dividend adjusted operating cash flows, and higher leverage ratios are significantly more likely to de-REIT. REITing generates significant positive abnormal returns (ARs) around the REITing announcement. These positive ARs are concentrated in firms with higher income tax liabilities and firms paying larger dividends pre REIT-conversion. De-REITing announcements generate significant negative ARs, which are mitigated when the de-REITing firm has low potential tax liabilities, or when the firm is cash flow constrained with respect to its dividend payment. Based on these results, we argue that the degree to which REITing (de-REITing) decisions are value generating (destroying) depends on the magnitude of potential tax and dividend implications. We also examine the longer run valuation effects of REITing and de-REITing decisions and find no evidence of a reversion of the short-run announcement effects.

Waiting to Be Called: The Impact of Manager Discretion and Dry Powder on Private Equity Real Estate Returns

The Journal of Portfolio Management, 2017

In this article, the authors investigate the performance sensitivity of private equity real estat... more In this article, the authors investigate the performance sensitivity of private equity real estate (PERE) funds to capital deployment speeds, investment horizons, management fees, and investor opportunity costs from uncalled capital. The authors first provide a series of simulation scenarios demonstrating the significant effects of these factors on PERE performance and then use PERE fund data to empirically investigate their performance effects. Using a comprehensive dataset from Cambridge Associates covering a large sample of 497 funds sponsored by 201 managers with aggregate assets under management of $383.9 billion from 2000–2013, the authors find that capital deployment speeds vary significantly across funds and over time and that very little of this variation is incorporated in traditional performance metrics. Importantly, the dilutive effects of management fees are positively related to the time over which capital is deployed and negatively related to the percentage of net capital called from investors and deployed by the fund manager. The authors also model the significant opportunity cost investors incur when reserving funds for uncertain capital calls. This cost of maintaining dry powder for the manager is ignored in reported performance metrics. Taken together, the authors’ results show the importance of accounting for capital deployment speeds, investment horizons, management fees, and uncalled capital in determining PERE fund performance.

Journal of Money, Credit and Banking, 2015

This paper examines the role of nonfundamentals‐based sentiment in house price dynamics, includin... more This paper examines the role of nonfundamentals‐based sentiment in house price dynamics, including the well‐documented volatility and persistence of house prices during booms and busts. To measure and isolate sentiment's effect, we employ survey‐based indicators that proxy for the sentiment of three major agents in housing markets: home buyers (demand side), home builders (supply side), and lenders (credit suppliers). After orthogonalizing each sentiment measure against a broad set of fundamental variables, we find strong and consistent evidence that the changing sentiment of all three sets of market participants predicts house price appreciation in subsequent quarters, above and beyond the impact of changes in lagged price changes, fundamentals, and market liquidity. More specifically, a one‐standard‐deviation shock to market sentiment is associated with a 32–57 basis point increase in real house price appreciation over the next two quarters. These price effects are large relat...

Real Estate Economics

The federal government has long promoted homeownership through various provisions in the US incom... more The federal government has long promoted homeownership through various provisions in the US income tax code. The Tax Cuts and Jobs Act of 2017 (TCJA) renewed interest and debate about the treatment of housing via the tax code, particularly with respect to the mortgage interest deduction and the limitation on deductions for state and local taxes. We document the extent that the TCJA magnifies the long‐standing unequal treatment of debt and equity financing of homeownership in the tax code. Our analysis indicates that most households no longer benefit from mortgage interest and property tax deductions. We also show how the limitations on the deduction of state and local taxes alter the costs associated with homeownership across geographic areas, and we provide detailed calculations of the average and marginal tax rates at which housing‐related expenses are deducted. The former are relevant to the tenure choice decision, the latter to the quantity demanded decision. Finally, we documen...

We examine how institutional investors reacted to geographically dispersed local shocks during th... more We examine how institutional investors reacted to geographically dispersed local shocks during the early stages of the COVID-19 pandemic. A sample of Real Estate Investment Trusts (REITs) enables us to link two layers of geography, the locations of assets in which the REITs were invested and the locations of institutional investors who owned REIT shares. We find that the institutional ownership of firms with an economic interest in the investors’ home markets declined more if those markets were heavily affected by the pandemic. In addition, the ownership responses to the COVID19 shock were larger in those markets in which REITs had larger portfolio allocations and in markets that were home to the investors. Importantly, we find that nonpassive and short-term investors may have overreacted to the local shocks because their REIT portfolios underperformed relative to passive and long-term investors. Our study highlights the importance of geography in the formation of investors’ expecta...

The Impact of Like-Kind Exchanges on Investment, Leverage, and Liquidity

Journal of Real Estate Literature, 2020

The empirical evidence on the effects of tax incentives on investment is mixed. Recent finance an... more The empirical evidence on the effects of tax incentives on investment is mixed. Recent finance and accounting empirical studies have relied on cross-sectional studies using financial statement data...

This paper estimates the likely impact of the Administration tax reform plan on housing. Our anal... more This paper estimates the likely impact of the Administration tax reform plan on housing. Our analysis incorporates two general equilibrium impacts-a one percentage point decline in the level of interest rates and a decrease in the property tax rate on principal residences-and corrects errors regarding discount rates and refinancing in the basic rental model. A 7 percent increase in market rents (11 percent without the decline in interest rates) is projected. Consideration of the individual components of the Administration plan suggests that the only significant negative provision is the cut in the personal tax rate from 0.53 (including a 6 percent state and local rate deductible at the Federal level) to 0.41. Without this cut (and the decline in interest rates which is largely attributable to the cut), market rents would fall by 6 percent. Rents rise only because rental housing is a negatively taxed asset in the sense that a tax cut lowers the supply of the asset.

The Benefits and Costs of Tax Deferral: An Analysis of Section 1031 Exchanges

Journal of Real Estate Literature, 2020

We examine the effects of Section 1031 of the Internal Revenue Code on commercial real estate (CR... more We examine the effects of Section 1031 of the Internal Revenue Code on commercial real estate (CRE) investors and markets, as well as on U.S. Treasury revenue. We first develop a partial equilibriu...

The Journal of Portfolio Management, 2021

We provide a comprehensive examination of the return performance of closed-end, private equity re... more We provide a comprehensive examination of the return performance of closed-end, private equity real estate (PERE) funds relative to the performance of listed real estate stocks (REITs) and the NCREIF ODCE fund index. We first match each PERE fund in our sample and its realized internal rate of return and equity multiple with the return that would have been earned by an LP investor on an investment in the designated benchmark over each fund's investment horizon. Overall, we find that closed-end PERE funds have underperformed listed REITs. In contrast, we find similar overall performance between PERE and the NCREIF ODCE fund index. We also examine the determinants of the relative performance spread between the PERE funds and the equity REIT index and find that the spread widens with interest rate environment variables (Treasury yields and default spreads) and narrows with broad macroeconomic performance indicators (growth rate of GDP). Key Findings 1. Closed-end PERE funds underperform listed REITs-both on average and by the percentages of individual funds. 2. The performance spread widens with interest rate environment variables (Treasury yields and default spreads) and narrows with broad macroeconomic performance indicators (growth rate of GDP). 3. The overall performance between PERE and the NCREIF ODCE fund index is similar.

The Journal of Real Estate Finance and Economics, 2018

Prior studies of REIT property transaction activity focus on shareholder wealth effects. This stu... more Prior studies of REIT property transaction activity focus on shareholder wealth effects. This study examines the effects of property acquisitions, dispositions, and overall trading activity on unsecured bond spreads, credit rating changes, and rating outlooks using a sample of the listed equity REITs in the U.S. We find that active property trading in general decreases creditors' wealth, but this negative impact is significantly mitigated for REITs with positive NAV premiums and when REITs use sale proceeds to pay down debt after the transactions. We also find that property transactions followed by an increased geographic focus significantly increase bond yield spreads and decrease the probability of credit rating upgrades. Keywords REIT  Property transaction  Bond yield spread  Credit rating change JEL Codes G23  G24  G32

Real Estate Economics, 2016

This article examines the effects of geographic portfolio concentrations on the return performanc... more This article examines the effects of geographic portfolio concentrations on the return performance of U.S. public real estate investment trusts versus private commercial real estate over the 1996-2013 time period. Adjusting private market returns for differences in geographic concentrations with public markets, we find that core private market performance falls. Using return performance attribution analysis, we find that the geographic allocation effect constitutes only a small portion of the total return difference between listed and private market returns, whereas individual property selection within geographic locations explains, in part, the documented outperformance of listed versus private real estate market returns.

Journal of Money, Credit and Banking, 2016

This article examines credit frictions and asset pricing in public and private markets with varyi... more This article examines credit frictions and asset pricing in public and private markets with varying liquidity. We find that a tightening in credit availability is negatively related to subsequent price movements in private and public commercial real estate markets. Assets trading in illiquid segments of these markets are also susceptible to a feedback effect whereby changes in asset prices predict subsequent changes in credit availability. Controlling for investor demand, our findings suggest credit constraints play an economically significant asset pricing role in markets that are both highly levered and relatively illiquid.

SSRN Electronic Journal, 2015

This article examines U.S. REIT leverage decisions and their effects on risk and return. We find ... more This article examines U.S. REIT leverage decisions and their effects on risk and return. We find that the speed at which REITs close the gap between current debt levels and target leverage levels is 17% annually. REITs that are highly levered relative to the average REIT tend to underperform REITs with less debt in their capital structure. However, REITs that are highly levered relative to their target leverage tend to perform better on a risk-adjusted basis than under-levered REITs. Taken together, our results show that REIT leverage has significant return performance effects conditional on deviations from target leverage.

Capital investment tax provisions have been changed numerous times in the last decade, with depre... more Capital investment tax provisions have been changed numerous times in the last decade, with depreciation tax lives shortened in 1981 and lengthened ever since and capital gains taxation reduced in 1978 and 1981 and now increased. The first part of this paper analyzes these changes and attributes a large part of them, including the 1986 Tax Act, to changes in inflation: tax depreciation schedules and capital gains taxation that look reasonable when the tax depreciation base is being eroded at ten percent a year and an overwhelming share of capital gains is pure inflation take on a different appearance when inflation is only four percent. The remainder of the paper critiques the typical project model used to compute impacts of tax changes on real estate and report simulation results using a modified model.

Referee Recognition

Real Estate Economics, 2002

ABSTRACT In most instances referees are indicated at the end of each paper which they referee. Th... more ABSTRACT In most instances referees are indicated at the end of each paper which they referee. The help of the following individuals who have refereed papers for this journal is hereby acknowledged. Individuals who refereed papers which were handled during the period covered by Issues 1 through 4 of this volume are included in this list. The Editors wish to express their thanks to all of these.

SSRN Electronic Journal, 2015

The last decade's boom and bust in U.S. commercial real estate (CRE) prices was at least as large... more The last decade's boom and bust in U.S. commercial real estate (CRE) prices was at least as large as that in the housing market and also had a large effect on bank failures. Nevertheless, the role of CRE in the Great Recession has received little attention. This study estimates cohesive models of short-run and long-run movements in capitalization rates (rent-to-price-ratio) and risk premiums across the four major types of commercial properties. Results indicate that CRE price movements were mainly driven by sharp declines in required risk premia during the boom years, followed by sharp increases during the bust phase. Using decompositions of estimated long-run equilibrium factors, our results imply that much of the decline in CRE risk premiums during the boom was associated with weaker regulatory capital requirements. The return to normal risk premia levels in 2009 and 2010 was first driven by a steep rise in general risk premia that occurred after the onset of the Great Recession and later by a tightening of effective capital requirements on commercial mortgage-backed securities (CMBS) resulting from the Dodd-Frank Act. In contrast to the mid-2000s boom, the recovery in CRE prices since 2010 has been mainly driven by declines in real Treasury yields to unusually low levels. Our findings have important implications for the channels through which macro-prudential regulation may or may not be effective in limiting unsustainable increases in asset prices.

The Journal of Real Estate Finance and Economics, 2022

In October 2018, the Real Estate Finance & Investment Symposium, sponsored and organized by the U... more In October 2018, the Real Estate Finance & Investment Symposium, sponsored and organized by the University of Cambridge, the University of Florida, and the National University of Singapore, was held in Gainesville, Florida. Ten papers on various research topics were presented over the day and one-half symposium. Each presentation was followed by remarks from a discussant as well as general discussion from the audience. This short editorial discusses the five papers from the symposium that are included in this special issue.

The Federal Tax Subsidy to Housing and the Reduced Value of the Mortgage Interest Deduction

National Tax Journal

Page 1. THE FEDERAL TAX SUBSIDY TO HOUSING AND THE REDUCED VALUE OF THE MORTGAGE INTEREST DEDUCTI... more Page 1. THE FEDERAL TAX SUBSIDY TO HOUSING AND THE REDUCED VALUE OF THE MORTGAGE INTEREST DEDUCTION*** JAMES R. FOLLAIN* and DAVID C. LING** ABSTRACT with little success in reducing the ...

Climate Change and Commercial Property Markets: The Role of Shocks, Retail Investors, and Media Attention

Social Science Research Network, 2023

Value Implications of REITing and De-REITing*

The Journal of Real Estate Finance and Economics

Value Implications of REITing and De-REITing

SSRN Electronic Journal, 2019

We explore the determinants and value implications of publicly traded real estate companies conve... more We explore the determinants and value implications of publicly traded real estate companies converting to real estate investment trusts (REITs), which we term REITing, and publicly-traded REITs giving up their REIT status, termed de-REITing. Non-REIT real estate firms that pay relatively high dividends and have high income tax ratios are more likely to convert to a REIT; while REITs that have lower pretax incomes, dividend adjusted operating cash flows, and higher leverage ratios are significantly more likely to de-REIT. REITing generates significant positive abnormal returns (ARs) around the REITing announcement. These positive ARs are concentrated in firms with higher income tax liabilities and firms paying larger dividends pre REIT-conversion. De-REITing announcements generate significant negative ARs, which are mitigated when the de-REITing firm has low potential tax liabilities, or when the firm is cash flow constrained with respect to its dividend payment. Based on these results, we argue that the degree to which REITing (de-REITing) decisions are value generating (destroying) depends on the magnitude of potential tax and dividend implications. We also examine the longer run valuation effects of REITing and de-REITing decisions and find no evidence of a reversion of the short-run announcement effects.

Waiting to Be Called: The Impact of Manager Discretion and Dry Powder on Private Equity Real Estate Returns

The Journal of Portfolio Management, 2017

In this article, the authors investigate the performance sensitivity of private equity real estat... more In this article, the authors investigate the performance sensitivity of private equity real estate (PERE) funds to capital deployment speeds, investment horizons, management fees, and investor opportunity costs from uncalled capital. The authors first provide a series of simulation scenarios demonstrating the significant effects of these factors on PERE performance and then use PERE fund data to empirically investigate their performance effects. Using a comprehensive dataset from Cambridge Associates covering a large sample of 497 funds sponsored by 201 managers with aggregate assets under management of $383.9 billion from 2000–2013, the authors find that capital deployment speeds vary significantly across funds and over time and that very little of this variation is incorporated in traditional performance metrics. Importantly, the dilutive effects of management fees are positively related to the time over which capital is deployed and negatively related to the percentage of net capital called from investors and deployed by the fund manager. The authors also model the significant opportunity cost investors incur when reserving funds for uncertain capital calls. This cost of maintaining dry powder for the manager is ignored in reported performance metrics. Taken together, the authors’ results show the importance of accounting for capital deployment speeds, investment horizons, management fees, and uncalled capital in determining PERE fund performance.

Journal of Money, Credit and Banking, 2015

This paper examines the role of nonfundamentals‐based sentiment in house price dynamics, includin... more This paper examines the role of nonfundamentals‐based sentiment in house price dynamics, including the well‐documented volatility and persistence of house prices during booms and busts. To measure and isolate sentiment's effect, we employ survey‐based indicators that proxy for the sentiment of three major agents in housing markets: home buyers (demand side), home builders (supply side), and lenders (credit suppliers). After orthogonalizing each sentiment measure against a broad set of fundamental variables, we find strong and consistent evidence that the changing sentiment of all three sets of market participants predicts house price appreciation in subsequent quarters, above and beyond the impact of changes in lagged price changes, fundamentals, and market liquidity. More specifically, a one‐standard‐deviation shock to market sentiment is associated with a 32–57 basis point increase in real house price appreciation over the next two quarters. These price effects are large relat...

Real Estate Economics

The federal government has long promoted homeownership through various provisions in the US incom... more The federal government has long promoted homeownership through various provisions in the US income tax code. The Tax Cuts and Jobs Act of 2017 (TCJA) renewed interest and debate about the treatment of housing via the tax code, particularly with respect to the mortgage interest deduction and the limitation on deductions for state and local taxes. We document the extent that the TCJA magnifies the long‐standing unequal treatment of debt and equity financing of homeownership in the tax code. Our analysis indicates that most households no longer benefit from mortgage interest and property tax deductions. We also show how the limitations on the deduction of state and local taxes alter the costs associated with homeownership across geographic areas, and we provide detailed calculations of the average and marginal tax rates at which housing‐related expenses are deducted. The former are relevant to the tenure choice decision, the latter to the quantity demanded decision. Finally, we documen...

We examine how institutional investors reacted to geographically dispersed local shocks during th... more We examine how institutional investors reacted to geographically dispersed local shocks during the early stages of the COVID-19 pandemic. A sample of Real Estate Investment Trusts (REITs) enables us to link two layers of geography, the locations of assets in which the REITs were invested and the locations of institutional investors who owned REIT shares. We find that the institutional ownership of firms with an economic interest in the investors’ home markets declined more if those markets were heavily affected by the pandemic. In addition, the ownership responses to the COVID19 shock were larger in those markets in which REITs had larger portfolio allocations and in markets that were home to the investors. Importantly, we find that nonpassive and short-term investors may have overreacted to the local shocks because their REIT portfolios underperformed relative to passive and long-term investors. Our study highlights the importance of geography in the formation of investors’ expecta...

The Impact of Like-Kind Exchanges on Investment, Leverage, and Liquidity

Journal of Real Estate Literature, 2020

The empirical evidence on the effects of tax incentives on investment is mixed. Recent finance an... more The empirical evidence on the effects of tax incentives on investment is mixed. Recent finance and accounting empirical studies have relied on cross-sectional studies using financial statement data...

This paper estimates the likely impact of the Administration tax reform plan on housing. Our anal... more This paper estimates the likely impact of the Administration tax reform plan on housing. Our analysis incorporates two general equilibrium impacts-a one percentage point decline in the level of interest rates and a decrease in the property tax rate on principal residences-and corrects errors regarding discount rates and refinancing in the basic rental model. A 7 percent increase in market rents (11 percent without the decline in interest rates) is projected. Consideration of the individual components of the Administration plan suggests that the only significant negative provision is the cut in the personal tax rate from 0.53 (including a 6 percent state and local rate deductible at the Federal level) to 0.41. Without this cut (and the decline in interest rates which is largely attributable to the cut), market rents would fall by 6 percent. Rents rise only because rental housing is a negatively taxed asset in the sense that a tax cut lowers the supply of the asset.

The Benefits and Costs of Tax Deferral: An Analysis of Section 1031 Exchanges

Journal of Real Estate Literature, 2020

We examine the effects of Section 1031 of the Internal Revenue Code on commercial real estate (CR... more We examine the effects of Section 1031 of the Internal Revenue Code on commercial real estate (CRE) investors and markets, as well as on U.S. Treasury revenue. We first develop a partial equilibriu...

The Journal of Portfolio Management, 2021

We provide a comprehensive examination of the return performance of closed-end, private equity re... more We provide a comprehensive examination of the return performance of closed-end, private equity real estate (PERE) funds relative to the performance of listed real estate stocks (REITs) and the NCREIF ODCE fund index. We first match each PERE fund in our sample and its realized internal rate of return and equity multiple with the return that would have been earned by an LP investor on an investment in the designated benchmark over each fund's investment horizon. Overall, we find that closed-end PERE funds have underperformed listed REITs. In contrast, we find similar overall performance between PERE and the NCREIF ODCE fund index. We also examine the determinants of the relative performance spread between the PERE funds and the equity REIT index and find that the spread widens with interest rate environment variables (Treasury yields and default spreads) and narrows with broad macroeconomic performance indicators (growth rate of GDP). Key Findings 1. Closed-end PERE funds underperform listed REITs-both on average and by the percentages of individual funds. 2. The performance spread widens with interest rate environment variables (Treasury yields and default spreads) and narrows with broad macroeconomic performance indicators (growth rate of GDP). 3. The overall performance between PERE and the NCREIF ODCE fund index is similar.

The Journal of Real Estate Finance and Economics, 2018

Prior studies of REIT property transaction activity focus on shareholder wealth effects. This stu... more Prior studies of REIT property transaction activity focus on shareholder wealth effects. This study examines the effects of property acquisitions, dispositions, and overall trading activity on unsecured bond spreads, credit rating changes, and rating outlooks using a sample of the listed equity REITs in the U.S. We find that active property trading in general decreases creditors' wealth, but this negative impact is significantly mitigated for REITs with positive NAV premiums and when REITs use sale proceeds to pay down debt after the transactions. We also find that property transactions followed by an increased geographic focus significantly increase bond yield spreads and decrease the probability of credit rating upgrades. Keywords REIT  Property transaction  Bond yield spread  Credit rating change JEL Codes G23  G24  G32

Real Estate Economics, 2016

This article examines the effects of geographic portfolio concentrations on the return performanc... more This article examines the effects of geographic portfolio concentrations on the return performance of U.S. public real estate investment trusts versus private commercial real estate over the 1996-2013 time period. Adjusting private market returns for differences in geographic concentrations with public markets, we find that core private market performance falls. Using return performance attribution analysis, we find that the geographic allocation effect constitutes only a small portion of the total return difference between listed and private market returns, whereas individual property selection within geographic locations explains, in part, the documented outperformance of listed versus private real estate market returns.

Journal of Money, Credit and Banking, 2016

This article examines credit frictions and asset pricing in public and private markets with varyi... more This article examines credit frictions and asset pricing in public and private markets with varying liquidity. We find that a tightening in credit availability is negatively related to subsequent price movements in private and public commercial real estate markets. Assets trading in illiquid segments of these markets are also susceptible to a feedback effect whereby changes in asset prices predict subsequent changes in credit availability. Controlling for investor demand, our findings suggest credit constraints play an economically significant asset pricing role in markets that are both highly levered and relatively illiquid.

SSRN Electronic Journal, 2015

This article examines U.S. REIT leverage decisions and their effects on risk and return. We find ... more This article examines U.S. REIT leverage decisions and their effects on risk and return. We find that the speed at which REITs close the gap between current debt levels and target leverage levels is 17% annually. REITs that are highly levered relative to the average REIT tend to underperform REITs with less debt in their capital structure. However, REITs that are highly levered relative to their target leverage tend to perform better on a risk-adjusted basis than under-levered REITs. Taken together, our results show that REIT leverage has significant return performance effects conditional on deviations from target leverage.

Capital investment tax provisions have been changed numerous times in the last decade, with depre... more Capital investment tax provisions have been changed numerous times in the last decade, with depreciation tax lives shortened in 1981 and lengthened ever since and capital gains taxation reduced in 1978 and 1981 and now increased. The first part of this paper analyzes these changes and attributes a large part of them, including the 1986 Tax Act, to changes in inflation: tax depreciation schedules and capital gains taxation that look reasonable when the tax depreciation base is being eroded at ten percent a year and an overwhelming share of capital gains is pure inflation take on a different appearance when inflation is only four percent. The remainder of the paper critiques the typical project model used to compute impacts of tax changes on real estate and report simulation results using a modified model.

Referee Recognition

Real Estate Economics, 2002

ABSTRACT In most instances referees are indicated at the end of each paper which they referee. Th... more ABSTRACT In most instances referees are indicated at the end of each paper which they referee. The help of the following individuals who have refereed papers for this journal is hereby acknowledged. Individuals who refereed papers which were handled during the period covered by Issues 1 through 4 of this volume are included in this list. The Editors wish to express their thanks to all of these.

SSRN Electronic Journal, 2015

The last decade's boom and bust in U.S. commercial real estate (CRE) prices was at least as large... more The last decade's boom and bust in U.S. commercial real estate (CRE) prices was at least as large as that in the housing market and also had a large effect on bank failures. Nevertheless, the role of CRE in the Great Recession has received little attention. This study estimates cohesive models of short-run and long-run movements in capitalization rates (rent-to-price-ratio) and risk premiums across the four major types of commercial properties. Results indicate that CRE price movements were mainly driven by sharp declines in required risk premia during the boom years, followed by sharp increases during the bust phase. Using decompositions of estimated long-run equilibrium factors, our results imply that much of the decline in CRE risk premiums during the boom was associated with weaker regulatory capital requirements. The return to normal risk premia levels in 2009 and 2010 was first driven by a steep rise in general risk premia that occurred after the onset of the Great Recession and later by a tightening of effective capital requirements on commercial mortgage-backed securities (CMBS) resulting from the Dodd-Frank Act. In contrast to the mid-2000s boom, the recovery in CRE prices since 2010 has been mainly driven by declines in real Treasury yields to unusually low levels. Our findings have important implications for the channels through which macro-prudential regulation may or may not be effective in limiting unsustainable increases in asset prices.

The Journal of Real Estate Finance and Economics, 2022

In October 2018, the Real Estate Finance & Investment Symposium, sponsored and organized by the U... more In October 2018, the Real Estate Finance & Investment Symposium, sponsored and organized by the University of Cambridge, the University of Florida, and the National University of Singapore, was held in Gainesville, Florida. Ten papers on various research topics were presented over the day and one-half symposium. Each presentation was followed by remarks from a discussant as well as general discussion from the audience. This short editorial discusses the five papers from the symposium that are included in this special issue.

The Federal Tax Subsidy to Housing and the Reduced Value of the Mortgage Interest Deduction

National Tax Journal

Page 1. THE FEDERAL TAX SUBSIDY TO HOUSING AND THE REDUCED VALUE OF THE MORTGAGE INTEREST DEDUCTI... more Page 1. THE FEDERAL TAX SUBSIDY TO HOUSING AND THE REDUCED VALUE OF THE MORTGAGE INTEREST DEDUCTION*** JAMES R. FOLLAIN* and DAVID C. LING** ABSTRACT with little success in reducing the ...