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Pricing Limited Partnerships in the Secondary Market

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  • Chang N. Xuan

    ()
    (Cornell University)

  • Daniel C. Quan

    ()
    (China Securities Regulatory Commission, Peoples Republic of China, Beijing 100032)

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    Abstract

    This study investigates the pattern of prices for multiple partnerships sold in the secondary market. In the model, the partnership buyer prefers to purchase the units sequentially since sellers have varying desires to sell. The benefit of a sequential purchase strategy is partially offset by rational sellers who demand higher prices in earlier sales since the possibility of future sales reduces the sellers’ eagerness to sell in earlier rounds. If this strategic component is sufficiently large, a pattern of decreasing prices should be observed. Using a panel dataset comprised of 52,679 transactions from eighteen real estate limited partnerships, and after controlling for performance characteristics, the study finds that prices decrease over time, thus indicating a significant strategic component in this market.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol23n03/01.215_234.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 23 (2002)
    Issue (Month): 3 ()
    Pages: 215-234

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    Handle: RePEc:jre:issued:v:23:n:3:2002:p:215-234

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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    1. Thiel, Stuart E, 1988. "Some Evidence of the Winner's Curse," American Economic Review, American Economic Association, vol. 78(5), pages 884-95, December.
    2. Brad M. Barber, 1996. "Forecasting the Discounts of Market Prices from Appraised Values for Real Estate Limited Partnerships," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(4), pages 471-491.
    3. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June.
    4. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
    5. Levin, Dan & Smith, James L, 1991. "Some Evidence on the Winner's Curse: Comment," American Economic Review, American Economic Association, vol. 81(1), pages 370-75, March.
    6. Robert J. Weber, 1981. "Multiple-Object Auctions," Discussion Papers 496, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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