Essays in real estate finance

The first essay in the dissertation analyzes the structure and attributes of subprime mortgage-backed securitization deals originated between 1997 and 2007. Our data set allows us to link loan-level data for over 6.7 million subprime loans to the securitization deals into which the loans were sold. We show that the securitization process, including the assignment of credit ratings, provided incentives for securitizing banks to purchase loans of poor credit quality in areas with high rates of house price appreciation. Increased demand from the secondary mortgage market for these types of loans appears to have facilitated easier credit in the primary mortgage market. To test this hypothesis, we identify an event which represents an external shock to the relative demand for subprime mortgages in the secondary market. We show that following the SEC's adoption of rules reducing capital requirements on certain broker dealers in 2004, five large deal underwriters disproportionately increased their purchasing activity relative to competing underwriters in ZIP codes with the highest realized rates of house price appreciation but lower average credit quality. We show that these loans subsequently defaulted at marginally higher rates. Finally, using the event as an instrument, we demonstrate a causal link between the demand for mortgages in the secondary mortgage market and the supply of subprime credit in the primary mortgage market.;The second dissertation essay examines the corporate governance of international real estate firms. With the passage of real estate investment trust (REIT) legislation in numerous countries around the world, more public and private real estate firms can choose between organizing themselves as a REIT, or a real estate operating company (REOC). REITs pay virtually all net income to shareholders in the form of dividends and are regulated in their investment policy, leverage, ownership, and operations to varying degrees. This paper considers the possibility that controlling shareholders of public real estate firms adopt REIT status as a credible commitment to increased levels of investor protection. Theory predicts that REITs are valued at a premium to otherwise similar REOCs, which I test using a sample of publicly traded real estate firms from 16 countries around the world. Surprisingly, I find that REITs are valued at a discount to REOCs. I briefly explore possible explanations for the result. Finally, I provide limited evidence consistent with an alternative hypothesis, which proposes that managers may be less likely to adopt REIT status if they have more valuable properties under management and a high level of inside ownership.