Alternative assets represent an increasing share of pension fund balance sheets all over the world, and real estate is a cornerstone of that allocation. This paper investigates the development in pension fund real estate investments over the last three decades, both in private and in public real estate, focusing on the performance of the asset class for the ultimate asset owners. The development of pension funds’ allocation to real estate differs across regions, with allocations increasing in Canada, stationary in the U.S., and shrinking in Europe. Just over 10% of the real estate exposure is through publicly listed vehicles. For the real estate portfolio as a whole, we observe a continuing increase in the use of external fund managers. Investment costs are stationary, with pension funds in the U.S. structurally paying more to their external private real estate managers than their peers in Canada and Europe. Costs relating to public real estate are more equal across regions. In terms of performance, we observe rather stable total returns for both private and listed real estate over the last three decades. Intermediated investment management for private real estate is costly, leading to disproportionately lower net returns.
We investigate the relationship between housing conditions and health outcomes using a dataset that tracks 25,000 German households over 25 years. We document that individuals exposed to poor housing conditions report worse mental and physical health, and experience an 11 percent increase in doctor visits, increasing to 20 percent for age groups over 64. The analysis controls for individual, dwelling and temporal fixed effects, and is robust to changes in socio-economic status, lifestyle choices, and neighborhood conditions. As a robustness check, we use home renovations as major a trigger of changes in housing conditions. Restricting the analysis to tenants, whose renovations are paid by landlords, we document that home renovations significantly reduce doctor visits, corroborating the findings on home conditions and health outcomes.
This paper analyzes the economics of “green” building. First, we analyze a panel of office buildings “certified” by independent rating agencies, finding that large recent increases in the supply of green buildings and the unprecedented volatility in property markets have not significantly affected the relative returns to green buildings.
Second, we analyze a large cross section of office buildings, demonstrating that economic premiums in rent and asset values are substantial.
Third, we relate the economic premiums for green buildings to their sustainability, confirming that the attributes rated for both thermal efficiency and sustainability contribute to premiums in rents and asset values. Even among green buildings, increased energy efficiency is fully capitalized into rents and asset values.
This paper provides the first credible evidence on the economic value of the certification of “green buildings” -- derived from impersonal market transactions rather than engineering estimates. Our analysis of clusters of certified green buildings and nearby comparables establishes that buildings with “green ratings” command ubstantially higher rents and selling prices than otherwise identical buildings. Moreover, variations in the premium for green office buildings are systematically related to their energy-saving characteristics. An increase in the energy efficiency of a green building is associated with a substantial increase in selling price – over and above the premium for a labeled building. Further evidence suggests that the intangible effects of the label itself may also play a role in determining the values of green buildings in the marketplace.
This paper investigates the effects of the energy efficiency and sustainability of commercial properties on the operating and stock performance of a sample of US REITs, providing insight into the net benefits of green buildings. We match data on LEED and Energy Star certified buildings with detailed information on REIT portfolios and calculate the share of green properties for each REIT over the 2000-2011 period. We estimate a two-stage regression model and document that the greenness of REITs is positively related to three measures of operating performance – return on assets, return on equity and the ratio of funds from operations to total revenue. We also document that there is no significant relationship between the greenness of property portfolios and abnormal stock returns, suggesting that stock prices already reflect the higher cash flows deriving from investments in more efficient properties. However, REITs with a higher fraction of green properties display significantly lower market betas.
Attention to “sustainability” and energy efficiency rating schemes in the commercial property sector has increased rapidly during the past decade. In the UK, commercial properties have been certified under the BREEAM rating scheme since 1999, offering fertile ground to investigate the economic dynamics of “green” certification in the commercial property market. In this paper, we document that over the 2000-2009 period, the expanding supply of “green” buildings within a given London neighborhood had a positive impact on rents and prices in general, but reduced rents and prices for environmentally-certified real estate. The results suggest that there is a gentrification effect from “green” buildings. However, each additional “green” building decreases premiums for a certified building in the rental and transaction markets by one percent and four percent, respectively. In addition, controls for lease contract features, like contract length and the rent-free period, modify the impact of certification on rental prices.
The residential sector accounts for one-fifth of global energy consumption, resulting from the requirements to heat, cool, and light residential dwellings. It is therefore not surprising that energy efficiency in the residential market has gained importance in recent years. In this paper, we examine awareness, literacy and behavior of households with respect to their residential energy expenditures. Using a detailed survey of 1,721 Dutch households, we measure the extent to which consumers are aware of their energy consumption and whether they have taken measures to reduce their energy costs. Our results show that “energy literacy” and awareness among respondents is low: just 56 percent of the respondents are aware of their monthly charges for energy consumption, and 40 percent do not appropriately evaluate investment decisions in energy efficient equipment. We document that demographics and consumer attitudes towards energy conservation, but not energy literacy and awareness, have direct effects on behavior regarding heating and cooling of the home. The impact of a moderating factor, measured by thermostat settings, ultimately results in strong variation in the energy consumption of private consumers.
In this paper, we analyze the diffusion of buildings certified for energy efficiency across US property markets. Using a panel of 48 metropolitan areas (MSAs) observed over the last 15 years, we trace the diffusion of green building practices across the country. We then model the geographic patterns and dynamics of building certification, relating industry composition, changes in economic conditions, characteristics of the local commercial property market, and the presence of human capital, to the cross-sectional variation in energy-efficient building technologies and the diffusion of those technologies over time. Understanding the determinants and the rate at which energy-efficient building practices diffuse over space and time is important for designing policies to affect resource consumption in the built environment.
Inferences about the determinants of land prices in urban areas are typically based on housing transactions which combine payments for land and long-lived improvements. In contrast, we investigate directly the determinants of urban land prices, and we analyze the link between the physical access of sites, the topographical and demographic characteristics of their local environment, and the prices of vacant land on those sites. Most importantly, our analysis documents the powerful link between variation in the regulatory environment within a metropolitan area and the prices commanded by raw land as an input to development. We then relate the variation in land prices to the prices paid by consumers for housing in the region, documenting that local land use regulations have quite large effects on the value of houses sold in the region. This is in part because regulations are so pervasive, and also because land values represent such a large fraction of house values in the San Francisco Bay Area.
This paper reports the first evidence on the market adoption and economic implications of energy performance certificates implemented by the European Union.
The results show that adoption rates are low and declining over time, coinciding with negative sentiment regarding the label in the popular media. Labels are clustered among smaller, post-war homes in neighborhoods with more difficult selling conditions. We also document that the adoption rates of energy labels have a positive relation to the number of “green” voters during the 2006 national elections.
Within the sample of labeled homes, the energy label creates transparency in the energy performance of dwellings. Our analysis shows that consumers capitalize this information into the price of their prospective homes.
Real estate’s large impact on the natural environment has led to a rise in energy-efficient, green building. Financial intermediaries may be affected by this trend, at the level of the company, the asset owner (REIT), and the institutional investor. This paper investigates the ecological responsiveness of more than 11,000 firms in specific industries by analyzing the decisions that these firms make in occupying office space. Controlling for building quality and location, we find that corporations in the oil and banking industries, as well as non-profit and public organizations, are among the most prominent green tenants. Furthermore, measures of an industry’s human capital intensity are positively related to the propensity to lease green office space. These empirical findings confirm the theoretical framework on economic advantage and institutional pressure as important determinants for the ecological responsiveness of firms.
We investigate 95 takeovers of property companies all over the world and find that only two of those are hostile. To determine the effectiveness of the market for corporate control...
We study the drivers of executive compensation in the listed UK property sector. The UK provides an excellent opportunity to analyze executive compensation due to high transparency in the different components of executive compensation...
Real estate investment trusts (REITs) offer a natural experiment in corporate governance due to the fact that they leave little free cash flow for management, which reduces agency problems...
