“One day I picked up Forbes magazine that told me I was worth a billion dollars, but I was scared to death about making payroll on Friday. So if you ask me what the single lesson I learned was, liquidity equals value."
A note of thanks to The Real Estate Research Institute for supporting the important research we cover today.
So-called “delegated investors” - institutional investors like pension funds and private equity funds that manage money on behalf of others - were responsible for 39% of all commercial real estate purchases in Boston from 2001 to 2015. In Pittsburgh, that number was 14%. The disparity prompts a natural question: “What’s wrong with Pittsburgh?”
So wondered Andra Ghent, then a researcher at UNC, who studied industrial, retail and office transactions across the 39 largest U.S. MSAs during that period. Her findings were clear: liquidity - measured by transaction volume - was the single most distinguishing feature of markets with high institutional ownership.2 But did institutional investors strongly prefer markets where assets are easier to trade, or was there something else about these high-liquidity markets that make them institutional?
The rest of this analysis is for paid subscribers.
Join a community of fund managers, principals, and lenders who use this work in IC memos and credit decisions. Full analysis, the complete archive, and zero sell-side noise. $10 a month. No annual commitment required.
Upgrade to Premium Today - 30 Days FREE!