Cornell Real Estate and Finance Working Papers

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The CREF Working Papers series contains research undertaken by the Center’s affiliated faculty in the fields of real estate, finance, and the build environment. The purpose of the series is to disseminate the research results as widely as possible and to encourage intellectual exchange. Please note that the work is preliminary in nature; we encourage readers to comment and debate the papers with the authors. Once work has been published in a journal or other publication, it will be removed from this page.

For submission guidelines or questions regarding the CREF Working Paper series, please send an e-mail to


Recent Submissions

Now showing 1 - 10 of 34
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    Real Estate: Private Equity Investment in Shanghai
    Liu, Peng; Loh, Terence (2021-10-22)
    In this case study, you are a consultant engaged to assess whether to invest in Project Innov Star, a Class A office project in Zhangjiang Shanghai, which currently is stalled. The hold up, and thus the opportunity to invest, arises due to a difference of opinion between the two partners. The majority investor (80%) seeks to sell its share, while the 20-percent minority investor would be willing to complete construction with a new partner, or might be open to selling the entire project. Your analysis will yield one of three recommendations: (1) pass on the investment, (2) purchase the majority, 80-percent share, or (3) purchase the entire project and engage a new construction partner. As part of the analysis, you are required to determine the value of the project, which is essentially the value of the land.
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    How Currency Exchange Rates Affect the Demand for U. S. Hotel Rooms
    Corgel, John B.; Lane, Jamie; Walls, Aaron (2013-04-01)
    This study addresses the question of how currency exchange rates affect aggregate hotel demand in the U.S. over time, among chain scales, and gateway cities. The effect is isolated after controlling for hotel room rates, real personal income, and other demand determinants. Exchange rates had a significant, although minor, influence on U.S. hotel demand from 1992 Q1 - 2012 Q1. Disaggregate analyses using data organized by time periods corresponding to Internet availability does not offer new insights about how exchange rates affect U.S. hotel demand. Analyses using chain scale and gateway city data, however, reveal that exchange rates strongly influence hotel demand in luxury, upper-upscale, and upscale segments, with a much weaker relationship among lower-price hotels. The exchange rate effect is strongest for upper-price hotels in gateway cities.
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    Diversification Benefits of REIT Preferred and Common Stock: New Evidence from a Utility Based Framework
    Boudry, Walter I.; deRoos, Jan A.; Ukhov, Andrey D. (2014-09-10)
    We study the diversification benefits of REIT preferred and common stock using a utility based framework in which investors segment based on risk aversion. Taking the view of a long run investor, we conduct our analysis using data from 1992 to 2012. We examine optimal mean-variance portfolios of investors with different levels of risk aversion given access to different classes of assets and establish two main results. First, REIT preferred and common stock provides significant diversification benefits to investors. REIT common stock helps low risk aversion investors attain portfolios with higher returns, while REIT preferred stock helps high risk aversion investors by providing a venue for risk reduction. Both asset classes receive material allocations over plausible levels of risk aversion. Second, while REIT preferred stock appears to behave somewhat like a hybrid debt/equity asset, its risk/return profile appears to not easily be replicated by those asset classes. When given the opportunity, investors will reduce allocations to REIT common stock and investment grade bonds and invest in REIT preferred stock.
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    The Curtailment Mortgage: A Proposal to Benefit Homeowners
    Quan, Daniel (2014-08-01)
    The Obama administration’s effort to encourage homeowners to refinance their mortgages under the Home Affordable Refinance Program (HARP) represents a reasonable approach at helping homeowners benefit from the current low mortgage rates. The HARP reduces the high costs of refinancing and in some cases makes refinancing possible for properties whose values have fallen below the mortgages’ values. While this will provide the intended benefit of increasing the homeowners’ income by reducing their mortgage payments, a closer inspection of the refinancing process in the US reveals that the current treatment of prepayment in US mortgages provides a disincentive for homeowners to accumulate equity in their houses. We propose a new mortgage contract, one which augments the terms of the existing conventional fixed-rate mortgage, which encourages homeowner equity accumulation thus leading to a more stable housing sector that can better weather future house price declines. From an economic policy perspective, the ability to reduce long term debt payments will have the same economic effect of increasing household’s permanent income which can provide a boost to the economy. This new mortgage proposal can be implemented by the government at little to no cost.
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    The Impact of Publicly Subsidized Hotels in the United States on Competing Properties
    Nelson, Robert R.; deRoos, Jan A.; Lloyd, Russell (2014-08-06)
    This paper examines the use of publicly funded subsidies to encourage hotel development in the United States. It reports highlights from the largest and most complete data base assembled on these transactions. This data shows that public subsidies play a significant role in American hotel development and many projects that are in various stages of the development pipeline include the use of public funds. It goes on to present eight impact analyses that look at how key performance metrics of competing hotels in various markets are affected when they have to contend with new entrants that are subsidized. Three markets saw increases in indexed RevPAR, while in the other five markets competing hotels seemed to suffer after the introduction of publicly subsidized competition.
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    CEO Bonus: Alternative Performance Measurement versus Gamesmanship
    Liu, Crocker H.; Tsang, Desmond (2014-01-10)
    Although CEO bonus plans traditionally use net income as the standard performance measure, there is an increasing trend that CEOs influence directors to adopt alternative non-GAAP performance metrics in setting bonuses. In this study, we analyze the managerial consequences of this alternative bonus contract design in the Real Estate Investment Trusts (REITs) industry. REITs provide a unique setting since most firms have been using FFO, an industry-specific non-GAAP performance measure, rather than net income, to determine CEO bonuses. Essentially, FFO consists of two components: net income, which is a GAAP measure, and a non-GAAP component that includes adjustments from net income made by firms. We examine to what extent CEO bonus arises as the result of manipulating these components. We also examine whether regulatory standards related to non-GAAP reporting and bonus disclosures are effective in mitigating such manipulation. Lastly, we analyze if good corporate governance constrains managerial opportunistic behavior. Our findings show, when given a choice to manipulate a GAAP versus a non-GAAP component, firms primarily choose to manage the non-GAAP component to increase bonuses. We further show that regulatory compensation disclosure standards and good governance mechanisms are important in reducing such manipulation. In additional analysis, we find that firms report less manipulation for bonus purposes in the post-financial crisis period, and CEO bonuses are higher at firms that report positive manipulations. Moreover, we do not find any association between FFO manipulation and other forms of compensation that are not directly linked to the FFO measure in compensation contract design. Finally, we show that capital market participants penalize firms’ manipulative activities on FFO, especially when such activities are accompanied by large CEO bonuses.
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    Hotel Sustainability Benchmarking (HSB) Study
    Chong, Howard; Ricaurte, Eric (2014-01-31)
    [Excerpt] This document presents the results of the first Cornell Hotel Sustainability Benchmarking (HSB) study of hotel carbon and energy data from the 2012 calendar year, which may evolve and repeat annually. By developing industry benchmarks, a more thorough understanding of attributes affecting energy usage and carbon emissions can be advanced. Lessons learned can be applied to both internal and external stakeholder audiences with the end goal of reducing the environmental impact of hotel operations.
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    Bubbles, Post-Crash Dynamics, and the Housing Market
    Liu, Crocker H.; Nowak, Adam; Rosenthal, Stuart (2014-01-10)
    This paper documents and explains previously unrecognized post-crash dynamics following the collapse of a housing market bubble. Although home prices in Phoenix doubled 2004-2006, the relative price of small-to-large homes remained strikingly constant. That changed following the crash when small-home relative prices fell up to 80 percent. We argue that post-crash exit of speculative developers allowed relative prices to diverge while differences in demand elasticities and turnover associated with job loss pushed small-home values down relative to large homes. As speculative developers return relative prices should revert back to pre-boom levels, consistent with mean reversion that began in 2011. The implied post-crash mispricing of homes can be mitigated if cities publish size-stratified home price indexes.
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    An Analysis of Data Regarding Public Private Partnerships to Encourage Hotel Development in the United States
    Nelson, Robert R.; deRoos, Jan A. (2014-08-06)
    In recent decades, communities in the United States have increasingly turned to public private partnerships, also known as PPPs or P3s, to encourage development of large convention headquarter hotels. Under such arrangements communities provide incentives to encourage private sector investors to build hotels that can house delegates, exhibitors and other attendees participating in events at publicly owned conventions centers. In recent years the practice of public subsidies, and in some cases outright public ownership, has spread beyond convention hotels to a wide range of hotel projects. This study presents data collected on these publicly assisted hotels to provide a picture of how these arrangements are structured. It goes on propose an economic model based on the income capitalization approach to valuation to determine the rate of return that communities can expect from their investments in these projects
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    What is common among return anomalies? Evidence from insider trading decisions
    Ma, Qingzhong; Ukhov, Andrey D. (2012-12-12)
    Conventional wisdom suggests that insiders buy shares on positive, and sell on negative, information. Under regulations of insider trading, however, insiders keep silent while possessing extreme information. We find that this phenomenon of insider silence is systematically related to a broad set of anomalies, particularly in the short legs. Specifically, among firms in the short legs, those whose insiders kept silent in the past experience significant negative future returns, which are even lower than when insiders net sold. On average, insider silence accounts for 64% of the short-leg abnormal returns. Our paper provides quantitative evidence of mispricing for return anomalies.