The impact of sovereign wealth investment on the commercial real estate investment market

This thesis explores the relationship between Sovereign Wealth Fund participation in the United States and office risk premium. Over the past 10 years the commercial real estate industry has been the benefactor of a shifting tide in equity capital formation. Sovereign Wealth Funds, proliferating over the past 15 years, have discovered that commercial real estate is a well aligned asset class along side equities, bonds, and other alternative assets. With that said, Sovereign Wealth Funds are not typical sources of equity. Unlike private capital, sovereign capital receives special treatment in their home county as well as most recipient countries. For example, some advantages that Sovereign Wealth Funds enjoy over private sources include the following; no disclosure requirements, no stock/stake holders to report to, and limited or zero taxation. Additionally, due to the extreme ground swell of foreign reserves and current account balances, there is nearly zero obligation for the return of capital. With no direct need for a return of or on capital, many of these Sovereign Wealth Funds operate under an effective "indefinite" time horizon. Finally, as government entities, there may be non-economic strategic goals when informing the investment decision. Combining these issues of limited transparency, preferential taxation, limited discloser requirements, indefinite investment horizon, and noneconomic motivations, Sovereign Wealth Funds have a clear pricing advantage over privately sourced investment funds. After achieving a statistically significant regression model, this thesis quantifies the magnitude and character of this advantage by looking at the estimated market risk premium paid as a result of Sovereign Wealth Fund participation.

Department dc:contributor.department

Massachusetts Institute of Technology. Center for Real Estate. Program in Real Estate Development.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2016

Author dc:creator

• Lehr, Robert Joshua

• Center for Real Estate. Program in Real Estate Development.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/103451

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/103451