CEO Political Preferences and the Sustainability of REITs

with Piet Eichholtz and Erkan Yonder

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This paper investigates how political preferences of real estate investors affect their investment decision-making. Specifically, we address the relationship between the political color of CEOs and the corporate sustainability of U.S. Real Estate Investment Trusts (REITs). We hypothesize that REITs with Republican-oriented CEOs are less likely to own “green” buildings as compared to REITs with Democrat-leaning CEOs. For each REIT CEO, we determine the ratio of contributions to Democrats compared to total political contributions during federal elections, and analyze whether this ratio is related to REIT holdings of “green” buildings, measured by Energy Star and LEED certification. We find that the Democrat ratio is positively related to the likelihood and intensity of green property investment of a REIT when we use the Energy Star label as a proxy for portfolio greenness. We do not find a significant relationship between political preference and ownership of LEED-labeled buildings. Additionally, we document that REITs with less experienced CEOs and larger firm size, as well as REITs operating in greener locations, are more likely to invest in green buildings.