Information Asymmetries and Learning in Commercial Real Estate Markets

This paper empirically tests information asymmetries and learning in global commercial real estate markets. We find that foreign investors pay a premium of 3.6%, on average, relative to local investors for comparable properties in local markets. The premiums reflect information disadvantages of foreign investors, which are not correlated with the hiring of agents, anchoring to prices in their home market and selection bias. We show that learning from prior acquisition experience significantly reduces information disadvantages of foreign investors. Foreign investors could offset their initial disadvantages relative to the first-time local investors after four acquisition experiences in local markets. Quality of learning through more distant past acquisitions, acquisitions of real estate of the same type and in the same city could also reduce information asymmetries of foreign investors. However, we find that geographic proximity does not explain information asymmetries in cross-border investments experienced by foreign investors.