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On the efficiency of the UPREIT organizational form: Implications for the subprime crisis and CDO's

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  • Ebrahim, M. Shahid
  • Mathur, Ike

Abstract

This paper studies optimal real estate organizational forms as a means of enhancing real estate values in the ongoing subprime crisis. We model the organizational response to stakeholder conflicts and regulatory changes to show how they evolve to an optimal form and undertake an optimal capital structure to enhance the welfare of investors. Using the examples of the REIT and RELP organizational forms, we show how the rivalry between taxable and institutional investors shapes the UPREIT form. We employ a two-period partial equilibrium model to demonstrate that UPREITs adapt to regulatory changes by (i) meticulously acquiring a hybrid form that contains the desirable features of both REITs and RELPs, and (ii) efficiently trading off debt claims between their constituent investor bases. This adaptation enhances welfare by mitigating administrative costs, agency costs, bankruptcy costs, illiquidity costs and taxes.

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  • Ebrahim, M. Shahid & Mathur, Ike, 2013. "On the efficiency of the UPREIT organizational form: Implications for the subprime crisis and CDO's," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 286-305.
  • Handle: RePEc:eee:jeborg:v:85:y:2013:i:c:p:286-305 DOI: 10.1016/j.jebo.2012.02.015
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    Cited by:

    1. Ebrahim, M. Shahid & Girma, Sourafel & Shah, M. Eskandar & Williams, Jonathan, 2014. "Dynamic capital structure and political patronage: The case of Malaysia," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 117-128.

    More about this item

    Keywords

    Administrative costs; Agency costs; Bankruptcy costs; CDOs; Illiquidity costs and Taxes;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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