Journal of Real Estate Finance and Economics, 20:2, 87±90 (2000)
# 2000 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.
Introduction to the Special Issue
The Maturation of a Developing Industry:
REITs in the 1990s
JOHN L. GLASCOCK
Department of Finance, George Washington University, 2023 G Street, 540B Lisner, Washington,
Finance Department, University of Connecticut, Storrs, CT 06269
Real Estate Investment Trusts (REITs) have changed substantially during the last few
decades, particularly during the 1990s: about 13 ®rms existed prior to 1972, but over 114
new REITs were created from 1990 to 1997, and another 35 created in 1998. Values
increased from about $6 billion in 1990 to over $300 billion by the end of 1998.
research in this issue helps us to better understand the operations of a growing industry.
The authors consider three key issues of the ongoing management of the REIT as a
business enterprise (Capozza and Seguin; Ghosh, Nag, and Sirmans; Ambrose, Ehrlich,
Hughes, and Wachter), performance of REITs (Downs; Ling, Naranjo, and Ryngaert;
Glascock, Lu, and So), and the transparency of public-market real estate (McDonald,
Nixon, and Slawson; Cooper, Downs, and Patterson).
Recently, the REIT structure has changed from external to internally advised. By 1999,
there were only 29 externally advised REITs but 139 self-advised REITs. Are there
problems associated with this change? Capozza and Seguin document that externally
advised ®rms may be motivated to have more debt with which they overinvest in assets,
thus causing the return of the REIT to be lower than otherwiseÐby about 7 percent per
year. In their sample, the ®rms have similar property-level cash ¯ows, and the difference in
performance comes from differences in corporate-level expenses, especially interest
charges. Compensation schemes seem to reward outside advisors based on asset size.
Everything else equal, an internal advisory system seems to signal stronger returns. These
results con®rm the outcomes of Howe and Shilling (1990), who found that externally
managed REITs experience negative abnormal returns, and Hsieh and Sirmans (1991),
who found that noncaptive REITs (those REITs that do not have business relationships
with external sponsors or advisors) outperform captive ones.