The Importance of Location in the Financing of Property Acquisitions by REITs

Abstract

We explore the role of location in the financing of commercial real estate acquisitions by real estate investment trusts (REITs). More specifically, we examine how the location of a property relative to a REIT's main business location affects the financing of that property. We find that REITs are less likely to use mortgage for investments located within the same state as the firm's headquarters. This result is robust and statistically significant after we control for other potential reasons for mortgage financing and year fixed effects. Further, within those transactions that involve mortgages, REITs are as likely to use CMBS financing irrespective of property location, evidencing the widespread availability of conduit lenders.

Keywords: Commercial property acquisitions, REITs, Location, Financing Structure

JEL Classification: G21, G31,G32, R3