REITs & market power : are public market pricing market power strategy? : an analysis of the apartment, retail and office sectors

Abstract

During the late 1980's and early 1990's, Real Estate Investment Trust ("REITs") accumulated large portfolios of properties. During this period, REITs were able to grow through acquisitions alone, arbitraging their low cost of capital relative to private asset valuations. This changed the real estate industry and for the first time, real estate entities have concentrated ownership in an industry traditionally characterized by fractionalized ownership. Today, there is tremendous pressure from the public markets for REITs to continue to grow. This has lead the management of REITs to seek alternative growth strategies. These strategies include cost economies of scale, branding, growth of non-real estate related revenue, vertical integration, and exertion of market power. This thesis studies market power in real estate, focusing specifically on whether REITs are currently exerting market power. The first half of the thesis determines the magnitude of REIT's current concentration of ownership, by cross referencing aggregate market data with individual REIT owned property data to arrive at market shares for individual REITs. The second half utilizes these market shares to determine whether public markets are capitalizing high market shares into stock prices and, therefore recognizing market power strategies.