Published In

Journal of Real Estate Finance and Economics

Document Type

Article

Publication Date

3-3-2023

Subjects

Commercial Real Estate Investment, Risk Perception, Government Risk, Political Attitudes

Abstract

We investigate the impact of governmental restrictions on the short-term risk perception, as proxied by the going-in cap rate, of investors in regional and neighborhood shopping centers. We use the COVID-19 pandemic as a natural experiment and proxy for the length and severity of COVID-19 restrictions with the political affiliation of state governors. Using a sample of 40 metropolitan statistical areas (MSAs) across 27 states over the period of 2018 to 2021, we find that for states with Republican governors, which proxy for shorter and fewer COVID-19 restrictions, investors in regional malls required a lower going-in cap rate in the pandemic period than for states with Democratic governors. This effect does not exist for neighborhood shopping centers, whose tenants were not as affected by COVID-19 restrictions. Robustness checks suggest that our findings can be explained with mask mandates as one type of governmental restrictions, and that COVID-19 related restrictions do not impact the long-term risk perception of retail real estate investors. We furthermore find that the political attitudes of an MSA have an impact on investor risk perception.

Rights

Copyright (c) 2023 The Authors

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

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DOI

10.1007/s11146-023-09947-y

Persistent Identifier

https://archives.pdx.edu/ds/psu/39739

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