TY - JOUR
T1 - REIT Operational Efficiency
T2 - External Advisement and Management
AU - Nicholson, Joseph R.
AU - Stevens, James A.
N1 - Publisher Copyright:
© 2021, The Author(s), under exclusive licence to Springer Science+Business Media, LLC part of Springer Nature.
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2021
Y1 - 2021
N2 - This paper examines the operational efficiency of equity Real Estate Investment Trusts (REITs) with respect to external advisement and management. We employ data envelopment analysis (DEA), a non-parametric statistical procedure that tests whether decision-making units are operating on their efficient frontier, to measure the relative performance of REITs before, during, and after the 2008–2010 financial crisis. Annual observations of both advising and management status of each REIT allow us to parse efficiency by these groups in various combinations. Our evidence suggests the inefficiency of externally-advised REITs has diminished in recent years, and the structure is no longer strictly inferior. External management of property operations, however, remains less efficient than self-management. General and administrative expenses, external advisory fees and property management fees are the main sources of inefficiency over the study period. In a difference-in-difference specification we find industry-wide operational efficiency was higher in the post-crisis than the pre-crisis period, indicating efficiency gains following the crisis.
AB - This paper examines the operational efficiency of equity Real Estate Investment Trusts (REITs) with respect to external advisement and management. We employ data envelopment analysis (DEA), a non-parametric statistical procedure that tests whether decision-making units are operating on their efficient frontier, to measure the relative performance of REITs before, during, and after the 2008–2010 financial crisis. Annual observations of both advising and management status of each REIT allow us to parse efficiency by these groups in various combinations. Our evidence suggests the inefficiency of externally-advised REITs has diminished in recent years, and the structure is no longer strictly inferior. External management of property operations, however, remains less efficient than self-management. General and administrative expenses, external advisory fees and property management fees are the main sources of inefficiency over the study period. In a difference-in-difference specification we find industry-wide operational efficiency was higher in the post-crisis than the pre-crisis period, indicating efficiency gains following the crisis.
KW - Data envelopment analysis
KW - Efficiency
KW - Operations
KW - Real estate investment trusts
KW - REITs
UR - http://www.scopus.com/inward/record.url?scp=85102074362&partnerID=8YFLogxK
U2 - 10.1007/s11146-021-09818-4
DO - 10.1007/s11146-021-09818-4
M3 - Article
AN - SCOPUS:85102074362
SN - 0895-5638
JO - Journal of Real Estate Finance and Economics
JF - Journal of Real Estate Finance and Economics
ER -