Institutional investors such as pension funds or insurance companies commonly invest in the unsecuritized and securitized real estate market. We investigate how institutional investor sentiment in the commercial real estate market affects institutional trading behavior in the REIT market and subsequently asset pricing. In particular, we test two alternative theoriesflight to liquidity and style investing theory -to explain the sentiment-induced trading behavior of institutional investors in the REIT market for the pre-crisis (2002-2006), crisis (2007-2009) and post-crisis (2010)(2011)(2012) period. We find that the applicability of either theory depends on economic conditions. In the pre-crisis period institutional investors switched capital in and out of REITs based on their sentiment in the private market (style investing). However, in the crisis period institutional investors switched capital from the illiquid private market to the more liquid REIT market (flight to liquidity). The flight to more liquid REITs continued into the post-crisis to a lesser extent and suggests that the financial crisis has changed institutional investment behavior. Our findings hold across different groups of REITs (e.g. high and low institutional ownership, S&P and non-S&P REITs) and property types. We also find that institutional real estate investor sentiment introduces a non-fundamental component into REIT pricing.

This study explores the dynamic nature of premia for energy-efficient design in the market for office space. Stationary premia for Energy Star-and Leadership in Energy and Environmental Design (LEED)-certified property transactions are estimated at 16.4 and 10.6% respectively, on a price per square foot basis. We provide evidence to suggest that these premia should not be uniformly applied to all properties, but that adjustments should be made to account for individual property characteristics and changing market conditions. In particular, variance in the premia for Energy Star-labelled assets is consistent with expectations for the actual impact on operating expenses. Premia for LEED-certified properties are more responsive to the expected marketing benefits accrued by tenants. LEED premia are increasing with market acceptance during the sample period, rather than decreasing as the novelty effect expires. Investment in both categories of property with energy-efficient design is increasingly advantageous during periods when office market conditions have softened.

This paper examines the dependence in irrational sentiments across housing, commercial property, and stock markets. Our empirical results document an important and lasting impact that commercial real estate sentiment and returns have on broader financial markets. We also show that the cross-over effects of market sentiments are not consistent with cross-over effects in market returns. Sentiments and returns in housing and stock markets exhibit strong dependence on other markets, whereas they evolve independently in commercial real estate. While housing and stock market returns respond to irrational sentiment in commercial real estate markets, the opposite is not true.

We show that conventional hedonic models for commercial real estate prices ignore the utility investors derive from a building's extreme attributes. Analyzing geo-enriched data on nearly 4,800 hotel transactions in the United States, we find that the relative positioning of an asset's attributes-particularly at the extremes-has a significant impact on transaction prices. We also detect separating equilibria for extreme attributes across the premium and discount hotel segments. Extreme attributes "stand out" and are value enhancing in premium hotel segments. In contrast, extreme attributes are value diminishing in the discount hotel segment. The relative degree to which the asset's attributes are extreme is important. Being a locally largest asset has a negative effect on price, however the negative effect is more than offset if the hotel is among the largest hotels nationally. The results suggest that locally extreme assets, unless also nationally extreme, are considered atypical and trade at a discount.