Faculty Scholarship 1994 - Present

Structural Changes, Market Growth and Productivity Gains of the US Real Estate Investment Trusts in the 1990s

The 1990s were tumultuous times for the U.S. REITs industry. Many critical regulatory reforms and structural changes occurred during the decade to promote real estate development, and increase the efficiency and productivity REITs. As a reflection of these changes, the REITs industry experienced remarkable asset growth in the 1990s, with a large number of IPOs and substantial increases in market capitalization. Employing the DEA-type Malmquist index approach, this paper explores the impact of such environmental changes on productivity growth, efficiency change, and technological progress of REITs between 1989 and 1999. Our results indicate that while efficiency of the REITs significantly increased, their average productivity declined and technology regressed during this decade. It appears that the typical REIT has failed to improve technically, but exerted substantial effort to catch up with the best practice ones relying mainly on aggressive growth strategies. However, our empirical results indicate that they might have overextended themselves as most began to suffer from diseconomies of scale.