IDEAS home Printed from https://ideas.repec.org/p/arz/wpaper/eres2025_140.html

Location Matters: Local Real Estate Market Risk and Geographic Diversification in REIT Public Debt

Author

Listed:
  • Hendrik Jenett
  • Jakob Kozak
  • McKay Price
  • Wolfgang Schäfers

Abstract

This study examines the impact of location based factors specifically local real estate market risk and geographic diversification on the bond risk premia of U.S. Real Estate Investment Trusts (REITs). We hypothesize that REITs operating in more volatile local real estate markets incur higher bond risk premia, reflecting investors' demand for compensation due to heightened risk exposure. Local real estate market risk is quantified using a REIT specific local beta factor, which captures sensitivity to national real estate market shocks. We find a local real estate market risk premium for REIT bonds, indicating that investors seek compensation for the additional risk. Furthermore, we uncover a non linear relationship between geographic diversification and bond risk premia, with a structural break at a Herfindahl Hirschman Index (HHI) of 0.25. For REITs with higher levels of concentration (HHI above 0.25), increased diversification is associated with lower bond risk premia. However, for well diversified REITs (HHI below 0.25), we identify a geographic diversification discount , where further diversification leads to higher bond risk premia, suggesting diminishing benefits from diversification. These findings underscore the important role of real estate location risk in shaping REIT debt costs, offering valuable insights for investors managing bond portfolio risks in the context of market volatility and geographic diversification.

Suggested Citation

  • Hendrik Jenett & Jakob Kozak & McKay Price & Wolfgang Schäfers, 2025. "Location Matters: Local Real Estate Market Risk and Geographic Diversification in REIT Public Debt," ERES eres2025_140, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2025_140
    as

    Download full text from publisher

    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2025-140
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arz:wpaper:eres2025_140. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Architexturez Imprints (email available below). General contact details of provider: https://edirc.repec.org/data/eressea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.