Commercial Property Sales in Hot and Cold Markets: Evidence from Four Decades of NCREIF Sales Data

Abstract

In this study, we examine the sales of properties from the NCREIF National Property Index (“NPI”) during the past four decades, spanning four up and three down cycles of the market each lasting two to five years, to explore factors that explain the sales of commercial real estate. Using data from more than 12,000 sales of NPI properties, we analyze the determinants of property sales using a panel hazard model that properly accounts for censoring in and the non-independence of the NPI data. We follow previous research by including three groups of explanatory variables that measure property characteristics, ownership characteristics, and national market conditions, and we specifically incorporate the concept of “hot” and “cold” markets into the analysis.

When we contrast the portfolio holdings and activities of institutional investors this way we find significant differences in the determinants of sales in hot and cold markets for all three groups of variables: property characteristics, owner characteristics, and national market conditions. For the full sample, our results are largely consistent with the existing literature on determinants of property sales.

Keywords: commercial real estate, closed-end fund, commingled fund, imputation, liquidity, NCREIF, NPI, open-end fund, real estate cycle, separate account

JEL Classification: G11, G22, G23, L85, R33, R51