Do REITs Have an Advantage When Credit is Tight?

Abstract

Executive Summary. Real estate investment trusts(REITs) have access to capital sources that other realestate investors do not: public markets for equity anddebt. Access to capital may give REITs an advantageover other commercial real estate investors when creditis tight. This paper examines whether markets perceivethis to be true and show that REITs' premia to net assetvalue (NAV) increase when credit is tight. Thus, it appearsthat the markets do see REITs as having an advantagewhen credit is tight, although there is a lag betweencredit tightening and markets reacting. In Japan,where J-REITs are far more passive than in the UnitedStates, the relationship between credit conditions andREIT premia to NAV is exactly the opposite.