Distance to Headquarter and Real Estate Equity Performance

Abstract

We study the effect of geographic portfolio diversification of real estate firms on their investment performance before and after the global financial crisis (GFC). In addition to previously used dispersion metrics, we also account for the distance of the properties to the corporate headquarters. We document a notable shift in the non-market performance of real estate companies after the crisis. Pre-GFC, we do not find a difference in non-market performance across equities based on geographic diversification. Post-GFC, equities with high geographic dispersion significantly outperform the market, while firms with concentrated property holdings do not deliver a significant alpha. Increased real estate equity market sophistication and strong institutional presence can explain why this effect is only observed for dispersed small firms, those invested outside gateway metro areas, or companies with low institutional ownership.