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Commercial Real Estate

Paper Session

Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)

Sheraton New Orleans, Bayside B
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Peng Liu, Cornell University

Cashflow Uncertainties: Modeling Time to Lease Variations for Office Properties

Brent Smith
,
Virginia Commonwealth University
Walter D'Lima
,
Florida International University

Abstract

Location spillovers are a common theme in real estate and urban economics research, but this is the first test on the relationship between hospital service quality and the demand for proximate medical office space. We hypothesize that hospitals with reputations for high quality service represent an opportunity for physicians, and other service providers, to benefit from reputation spillovers. Further, the reputation benefit is capitalized into the practices’ willingness to pay for proximate office locations, thereby driving up the rental rates for nearby space. We find that distance from, and overall quality ranking of the hospital, both independent and in concert, are significantly linked to the base rents. The degradation in rent with distance is significantly greater when the hospital is ranked high in overall service quality, supporting the notion that a rent premium is linked to the high-quality hospital rather than simply an artifact of the neighborhood.

Financing Constraints and Maintenance Investments: Evidence from Apartments

Lee Seltzer
,
Federal Reserve Bank of New York

Abstract

This paper studies whether renters bear the costs of building financing constraints in the form of reduced maintenance. Using a novel data set combining housing code violations from 45 US cities with apartment financing information, I show more financially constrained buildings incur more code violations. I then exploit a natural experiment effectively reducing financial resources for some New York City rent stabilized buildings. Following the shock, code violations increase for affected buildings relative to controls, and the effect is concentrated among more financially constrained buildings. The results are consistent with financing constraints reducing maintenance.

Do Risky Commercial Tenants Get Short-Term Leases?

Jan Brueckner
,
University of California-Irvine
Stuart Rosenthal
,
Syracuse University

Abstract

This paper explores the connection between commercial lease length and tenant riskiness, a nexus that has not been investigated in the prior leasing literature. Our theoretical model highlights the possibility of default on a long-term lease as a driver of the risk/lease-length connection. The paper’s empirical work makes use of a large dataset on lease characteristics from CompStak matched at the establishment level with a firm risk index and other tenant characteristics from Dun & Bradstreet. The empirical results confirm that lease length is inversely related to tenant riskiness.

The Effects of Agglomeration on Customer Traffic & Commercial Real Estate Values: Evidence from Grocery Store Openings

Franklin Qian
,
University of North Carolina-Chapel Hill
Qianyang Zhang
,
Columbia University
Xiang Zhang
,
Princeton University

Abstract

We investigate the driving forces and effects of agglomeration in the local non-tradable service sector on the value of commercial real estate (CRE). Using a sample of 234 grocery store openings in the U.S. in 2019, we study the impacts of grocery store openings on customer demand, business dynamics of tenant entries, exits, and compositions. We assess whether the benefits of agglomeration are capitalized into the rents and values of CRE properties. Grocery store openings lead to significant growth in foot traffic to its opening locations and a 26 percent increase in traffic to nearby businesses within 0.1 miles. The demand spillovers are strongest between new grocery stores and existing grocery stores and businesses in wholesale and retail. Market values for retail properties within 0.5 miles of an opening increase by 11.6 percent in the six quarters after the opening.

Discussant(s)
Spencer Couts
,
University of Southern California
Jiro Yoshida
,
Pennsylvania State University
Jacob Sagi
,
University of North Carolina-Chapel Hill
Lindsay Ellen Relihan
,
Purdue University
JEL Classifications
  • R1 - General Regional Economics