REIT Operational Efficiency: External Advisement and Management

Joseph R. Nicholson, James A. Stevens

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


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.

Original languageEnglish
Pages (from-to)127-151
Number of pages25
JournalJournal of Real Estate Finance and Economics
Issue number1
StatePublished - Jul 2022


  • Data envelopment analysis
  • Efficiency
  • Operations
  • REITs
  • Real estate investment trusts


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