Faculty Scholarship 1994 - Present

Investigating the Structural Changes and Productivity Growth of the US Real Estate Investment Trusts in the 1990s

The U.S. REITs industry had tumultuous years during the past two decades. Starting from 1986, and especially after 1993, many critical regulatory and structural reforms have been launched to promote the real estate development, and increase the efficiency and productivity of the REITs. As a reflection of these changes, the REITs industry experienced remarkable asset growth in the 1990s, with large number of IPOs and substantial increase in market capitalization. Employing a DEA-type Malmquist Index, this paper explores the impact of these structural changes on the productivity growth, efficiency change, and technological progress of the REITs between 1989-1999. Our results indicate that while efficiency of the REITs significantly increased, their average productivity declined and technology regressed after 1993. It appears the typical REIT has failed to improve technically, but exerted substantial efforts to catch up with the best practice ones in the new competitive environment. The regress in the REITs technology may be attributed to their excessive external funding and growth during the period. Hence, reducing dividend distribution requirements may augment their production performance further.