Real Estate Portfolio Transactions by German Corporates - Modelling Typical Frictions as Anomalies from Behavioral Decision Theory

"The objective of the paper is to propose anomalies from Behavioral Decision Theory as explanations for typical problems leading to the failure of very large sale and leaseback portfolio transactions by German corporates. The applicability of behavioural anomalies will be described and evidenced. The paper presents the quintessence of a wider research project on this matter. The author considers his work to be the first on the problem of large portfolio transactions failing in the German market. Moreover, the further application of anomalies from Behavioral Decision Theory will advance studies in the field of Behavioural Real Estate. This area has mainly focused yet on property valuation, now research will be extended to Real Estate Corporate Finance transactions. Furthermore, certain anomalies like mental accounting and ambiguity aversion have not been used in Real Estate research. The research presented in the paper will offer an integrated model of the seller's decision situation during the transaction. The outcomes of the transactions will be modelled as two lotteries for the seller: Owner's perspective (Will the transaction bring the desired cash-in or not) and User's perspective (Will the sell-off of self used property limit the delimit the property's use). In a descriptive element, the application of key behavioural anomalies (anchoring and adjustment, mental accounting, sunk-cost effect, ambiguity aversion) will be demonstrated, extending behavioural research to large real estate transactions. Moreover, a logic for the anomalies' applicability will be developed as well as empirical evidence from experiments will be provided. The application of behavioural anomalies will help to explain sellers' behaviour, clearly irrational to buyers and other market participants and until now having been summarized as ""unexplainable emotionality"". Furthermore, insights form debiasing literature will even allow recommendations for avoiding further frictions in transactions. From a theoretical point of view, the contribution will lie in extending Behavioural Real Estate research to large transactions as well as the first-time application of specific anomalies in a real estate context. "