Corporate-Owned Real Estate Represents a Substantial Investment Universe

Article excerpt

Executive Summary. Corporate-owned real estate is a much more significant component of the real estate investment universe than is broadly recognized. In this article the results of recent research concerning the magnitude of the investment universe represented by corporate-owned real estate is presented, and the implications of the significance of corporate real estate for institutional investors are explored. Corporate-owned real estate incorporates significant types of properties that are not generally perceived as part of the mainstream real estate sector. While some 50% of corporate-owned real estate is specialized and therefore not appropriate for third-party investment by institutional investors, nearly 40% of the aggregate of corporate-owned real estate is core business real estate appropriate for institutional investors. The investable universe of $3.7 trillion of corporate-owned real estate represents a major source of property investments for institutional investors seeking involvement in the real estate market.

Corporate-owned real estate is a much more significant component of the real estate investment universe than is broadly recognized. Because the majority of institutional investors in real estate have only limited and often less-than-accurate knowledge of the scale and significance of corporate-owned real estate, they may make investing decisions that are sub-optimal and/or forego opportunities that could be realized with more knowledge. In this article the results of recent research concerning the magnitude of the investment universe represented by corporate-owned real estate is presented, and the implications of the significance of corporate real estate for institutional investors are explored.

Many others beyond investors can benefit from this knowledge as well. Corporate-owned real estate is a veritable massive "iceberg below the water line." It represents substantial demand for property goods and services by corporations in connection with their properties. Other participants in the real estate market can make more informed strategies and decisions with this knowledge. Professionals providing services to the real estate markets can better understand the overall source of demand for property professional services. Those property market participants-including developers, and those associated with the building development process; lenders, including both those originating loans and those investing in loans; appraisers and market analysts, concerned with understanding influences on property prices and demand-may benefit from more knowledge and a deeper understanding of the significance of corporate real estate.

Some real estate principles textbooks and some real estate financing textbooks include coverage of the corporation's lease-buy decision, concerning whether the corporation should commit capital and take on all of the associated responsibilities of owning a property, or alternatively, leasing the property from a third party property owner. Such coverage of the lease-buy decision in real estate textbooks and the research literature is devoted to consideration of the relative advantages and disadvantages of leasing, as contrasted to owning, real estate occupied by the business, as well as the analytic methodologies that might be employed to evaluate the relative appeal of owning versus leasing real estate.

Not considered in either the real estate research literature or real estate textbooks are the aggregated consequences of the lease-or-buy decision. Also not addressed are the empirical outcomes of these decisions, such as how much property is leased and how much is owned. Instead, the treatment of the lease-or-buy decision is predominantly analytic and methodological, rather than empirical.

Corporate real estate as a subject has been underresearched relative to other aspects of real estate (Roulac and Manning, 1999). Notably, in the 1990s there was a decline in the real estate academy's attention to corporate real estate (Manning and Roulac, 1999), even though the significance of corporate real estate was profound (Roulac, 2001). …