Advertisement

Determinants of Foreign Versus Domestic Real Estate Investment: Property Level Evidence from Listed Real Estate Investment Firms

  • Nathan Mauck
  • S. McKay PriceEmail author
Article

Abstract

We examine the determinants of foreign real estate investment relative to the domestic case using the portfolios of a large sample of publicly traded real estate investment companies; where foreign investment is defined as the property owner headquarters being located in a different country than a given asset. The cross-sectional results provide strong evidence that real estate firms are more likely to take a smaller stake in larger assets when investing abroad. The penchant for large assets holds when controlling for economic activity, real estate investment opportunities, depth and sophistication of the capital markets, investor protection and the legal framework, administrative burdens and regulatory limitations, and the socio-cultural and political environment at both the property nation and headquarter nation levels. In general, foreign ownership is less likely with industrial, office, retail, and self-storage properties. Capital market development is consistently negatively related to foreign investment.

Keywords

Real estate investment International real estate International finance Foreign investment 

JEL Classification

F21 G11 G23 O16 O18 P52 

Notes

Acknowledgments

We appreciate the helpful comments and suggestions of an anonymous reviewer, seminar participants at Lehigh University, and conference attendees at the 2015 annual meeting of the American Real Estate Society. In conjunction with the latter event, this study was awarded a prize as the best paper in real estate portfolio management, sponsored by the Royal Institution of Chartered Surveyors (RICS). We also thank Wei Huang for excellent research assistance

References

  1. Ang, J., Knill, A., & Mauck, N. (2014). Cross-border opportunity sets and deal failure: An international empirical study based on ownership types. Kansas City: Working Paper, Florida State University and University of Missouri.Google Scholar
  2. Bardhan, A., Edelstein, R., & Tsang, D. (2008). Global financial integration and real estate security returns. Real Estate Economics, 36(2), 285–311.CrossRefGoogle Scholar
  3. Berkowitz, D., Pistor, K., & Richard, J. (2003). Economic development, legality, and the transplant effect. European Economic Review, 47, 165–195.CrossRefGoogle Scholar
  4. Bond, S. A., Karolyi, G. A., & Sanders, A. B. (2003). International real estate returns: a multifactor, multicountry approach. Real Estate Economics, 31(3), 481–500.CrossRefGoogle Scholar
  5. Cohen, L. (2009). Loyalty-based portfolio choice. Review of Financial Studies, 22(3), 1213–1245.CrossRefGoogle Scholar
  6. Cronbach, L. J. (1951). Coefficient alpha and the international structure of tests. Psychometrika, 16, 297–334.CrossRefGoogle Scholar
  7. Eichholtz, P. M. A., Gugler, N., & Kok, N. (2011). Transparency, integrations, and the cost of international real estate investments. Journal of Real Estate Finance and Economics, 43, 152–173.CrossRefGoogle Scholar
  8. Erel, I., Liao, R., & Weisbach, M. (2012). Determinants of cross-border mergers and acquisitions. Journal of Finance, 67, 1045–1082.CrossRefGoogle Scholar
  9. Faruqee, H., Li, S., & Yan, I.K. (2004). The determinants of international portfolio holdings and home bias. Working Paper, International Monetary Fund.Google Scholar
  10. French, K. R., & Poterba, J. M. (1991). Investor diversification and international equity markets. American Economic Review, 81(2), 222–226.Google Scholar
  11. Gordon, J.N. (2004). The expanding world of cross-border real estate. Wharton Real Estate Review, 23–28.Google Scholar
  12. Groh, A. P., Liechtenstein, H., & Lieser, K. (2010). The European venture capital and private equity country attractiveness indices. Journal of Corporate Finance, 16(2), 205–224.CrossRefGoogle Scholar
  13. Hoesli, M., & Reka, K. (2013). Volatility spillovers, comovements and contagion in securitized real estate markets. Journal of Real Estate Finance and Economics, 47, 1–35.CrossRefGoogle Scholar
  14. Huberman, G. (2001). Familiarity breeds investment. Review of Financial Studies, 14(3), 659–680.CrossRefGoogle Scholar
  15. Karolyi, G. A., & Liao, R. (2010). What is different about government-controlled acquirers in cross-border acquisitions? Working Paper, Cornell University and Rutgers University.Google Scholar
  16. Kelley, E., & Woidtke, T. (2006). Investor protection and real investment by U.S. multinationals. Journal of Financial and Quantitative Analysis, 41, 541–572.CrossRefGoogle Scholar
  17. Keloharju, M., Knupfer, S., & Linnainmaa, J. (2012). Do investors buy what they know? product market choices and investment decisions. Review of Financial Studies, 25(10), 2921–2958.CrossRefGoogle Scholar
  18. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52, 1131–1150.CrossRefGoogle Scholar
  19. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1998). Law and finance. Journal of Political Economy, 106, 1113–1155.CrossRefGoogle Scholar
  20. Leamer, E. E. (1983). Let’s take the con out of econometrics. American Economic Review, 73(1), 31–43.Google Scholar
  21. Liang, Y., & Gordon, N. M. (2003). A bird’s eye view of global real estate markets. New Jersey: Prudential Real Estate Investors.Google Scholar
  22. Lieser, K., & Groh, A. P. (2011). The attractiveness of 66 countries for institutional real estate investments. Journal of Real Estate Portfolio Management, 17(3), 191–211.Google Scholar
  23. Lieser, K., & Groh, A. P. (2014). The determinants of international commercial real estate investment. Journal of Real Estate Finance and Economics, 48, 611–659.CrossRefGoogle Scholar
  24. Liow, K. H., Zhou, X., & Ye, Q. (2014). Correlation dynamics and determinants in international securitized real estate markets. Real Estate Economics, Forthcoming.Google Scholar
  25. Pavlov, A. D., Steiner, E., & Wachter, S. M. (2015). Macroeconomic risk factors and the role of mispriced credit in the returns from international real estate securities. Real Estate Economics, 43(1), 241–270.CrossRefGoogle Scholar
  26. Pool, V. K., Stoffman, N., & Yonker, S. E. (2012). No place like home: familiarity in mutual fund manager portfolio choice. Review of Financial Studies, 25(8), 2563–2599.CrossRefGoogle Scholar
  27. Rossi, S., & Volpin, P. F. (2004). Cross-country determinants of mergers and acquisitions. Journal of Financial Economics, 74(2), 277–304.CrossRefGoogle Scholar
  28. Sala-i-Martin, X. (1997). I just ran four million regressions. Working Paper, NBER and Columbia University.Google Scholar
  29. Sirmans, C. F., & Worzala, E. (2003). International direct real estate investment: a review of the literature. Urban Studies, 40(5–6), 1081–1114.CrossRefGoogle Scholar
  30. Tesar, L. L., & Werner, I. M. (1995). Home bias and high turnover. Journal of International Money and Finance, 14(4), 467–492.CrossRefGoogle Scholar
  31. Warnock, F. E. (2002). Home bias and high turnover reconsidered. Journal of International Money and Finance, 21(6), 795–805.CrossRefGoogle Scholar
  32. Worzala, E., & Sirmans, C. F. (2003). Investing in international real estate stocks: a review of the literature. Urban Studies, 40(5–6), 1115–1149.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.University of Missouri - Kansas CityKansas CityUSA
  2. 2.Collins-Goodman Fellow in Real Estate FinanceLehigh UniversityBethlehemUSA

Personalised recommendations