Research
Research
Embedded Files
Working Papers
Working Papers
Pricing Government Contract Risk Premia: Evidence from the 2025 Federal Lease Termination with Cameron LaPoint (Yale)
Pricing Government Contract Risk Premia: Evidence from the 2025 Federal Lease Termination with Cameron LaPoint (Yale)
Abstract: Disruptions to government contracts traditionally arise during federal shutdowns when Congress fails to appropriate necessary funding. However, recent shifts in federal real estate policy, marked by lease cancellations and non-renewals, challenge the long-standing perception of federal leases as a secure and stable investment. We investigate how federal lease cancellations impact the pricing of government contract risk premia. Using unanticipated Department of Government Efficiency (DOGE) cancellations as a shock to commercial mortgage default risk, we find that first-loss CMBS bond tranches directly linked to DOGE-notified leases experience a persistent 4% drop in price, with large, negative spillover effects to bond prices, delinquency rates, and rental cash flows tied to nearby public and private-tenant leases. These results reflect that early termination options were previously perceived by investors as a dormant clause. Applying arbitrage pricing models of commercial lease contingencies confirms the underpricing of risk associated with government tenants.
Abstract: Disruptions to government contracts traditionally arise during federal shutdowns when Congress fails to appropriate necessary funding. However, recent shifts in federal real estate policy, marked by lease cancellations and non-renewals, challenge the long-standing perception of federal leases as a secure and stable investment. We investigate how federal lease cancellations impact the pricing of government contract risk premia. Using unanticipated Department of Government Efficiency (DOGE) cancellations as a shock to commercial mortgage default risk, we find that first-loss CMBS bond tranches directly linked to DOGE-notified leases experience a persistent 4% drop in price, with large, negative spillover effects to bond prices, delinquency rates, and rental cash flows tied to nearby public and private-tenant leases. These results reflect that early termination options were previously perceived by investors as a dormant clause. Applying arbitrage pricing models of commercial lease contingencies confirms the underpricing of risk associated with government tenants.
The Importance of Networks for Career Success: Evidence from the Real Estate Industry with Patrick Smith (UNC Charlotte), Ali Tosyali (RIT)
The Importance of Networks for Career Success: Evidence from the Real Estate Industry with Patrick Smith (UNC Charlotte), Ali Tosyali (RIT)
Abstract: This paper investigates how network connections affect the early career success of new real estate agents. Modeling agent survival as a dynamic Bayesian network game, we hypothesize that transacting with well-connected counterparty agents will lead to more network connections and longer careers. Leveraging the quasi-random matching of agents, we isolate the causal effect of counterparty network centrality on new agents’ survival rate. Our findings show that new agents who transact with well-connected counterparty agents achieve higher survival rates and transaction volumes, underscoring the importance of early network formation in shaping career outcomes for real estate intermediaries.
Abstract: This paper investigates how network connections affect the early career success of new real estate agents. Modeling agent survival as a dynamic Bayesian network game, we hypothesize that transacting with well-connected counterparty agents will lead to more network connections and longer careers. Leveraging the quasi-random matching of agents, we isolate the causal effect of counterparty network centrality on new agents’ survival rate. Our findings show that new agents who transact with well-connected counterparty agents achieve higher survival rates and transaction volumes, underscoring the importance of early network formation in shaping career outcomes for real estate intermediaries.
Contingency or Liquidity: Cash Transactions in Housing Markets with Patrick Smith (UNC Charlotte)
Contingency or Liquidity: Cash Transactions in Housing Markets with Patrick Smith (UNC Charlotte)
Abstract: This paper examines how market dynamics and mortgage innovations affect mortgage cash premiums in housing markets. We model cash and mortgage offers as distinct contingencies within a forward contract under an arbitrage free pricing framework. Cash offers, once a bargaining advantage, became essential in competitive post-pandemic bidding environments. Using a difference in differences approach, we estimate a 13 percentage point liquidity discount for cash purchases before the pandemic. Innovative mortgage products, particularly lender backed cash offers introduced by community banks, enabled mortgage dependent and marginal buyers to compete more effectively, ultimately eliminating the mortgage cash premium.
Abstract: This paper examines how market dynamics and mortgage innovations affect mortgage cash premiums in housing markets. We model cash and mortgage offers as distinct contingencies within a forward contract under an arbitrage free pricing framework. Cash offers, once a bargaining advantage, became essential in competitive post-pandemic bidding environments. Using a difference in differences approach, we estimate a 13 percentage point liquidity discount for cash purchases before the pandemic. Innovative mortgage products, particularly lender backed cash offers introduced by community banks, enabled mortgage dependent and marginal buyers to compete more effectively, ultimately eliminating the mortgage cash premium.
The Winner's Curse in Housing Markets with Adam Nowak (WVU), Patrick Smith (UNC Charlotte), Alexei Tchistyi (Cornell)
The Winner's Curse in Housing Markets with Adam Nowak (WVU), Patrick Smith (UNC Charlotte), Alexei Tchistyi (Cornell)
Abstract: This paper tests for a winner’s curse in housing markets by examining the subsequent performance of bidding war transactions relative to non-bidding war transactions. We develop a model in which homeowners who purchase their house in a bidding war transaction experience lower annualized returns and a higher likelihood of mortgage default. Consistent with the model predictions, we find homebuyers who purchase their house in a bidding war experience 8.8pp lower total unlevered return compared to those not engaged in a bidding war and are 2.1pp more likely to default. These winner’s curse effects are even more pronounced among socioeconomically vulnerable homebuyers.
Abstract: This paper tests for a winner’s curse in housing markets by examining the subsequent performance of bidding war transactions relative to non-bidding war transactions. We develop a model in which homeowners who purchase their house in a bidding war transaction experience lower annualized returns and a higher likelihood of mortgage default. Consistent with the model predictions, we find homebuyers who purchase their house in a bidding war experience 8.8pp lower total unlevered return compared to those not engaged in a bidding war and are 2.1pp more likely to default. These winner’s curse effects are even more pronounced among socioeconomically vulnerable homebuyers.
Abstract: Evidence of excess volatilities at high asset prices is associated with bubbles. We propose a new asset price bubble testing methodology based on volatility estimates. Examining the current U.S. equity bull market, we find that the S&P 500, Dow Jones, and Nasdaq do not exhibit bubbles. We investigate Lyft’s earnings error news and estimate that the bubble’s lifetime is approximately 3 months. Our methodology and results are robust to various adjustments for outliers.
Abstract: Evidence of excess volatilities at high asset prices is associated with bubbles. We propose a new asset price bubble testing methodology based on volatility estimates. Examining the current U.S. equity bull market, we find that the S&P 500, Dow Jones, and Nasdaq do not exhibit bubbles. We investigate Lyft’s earnings error news and estimate that the bubble’s lifetime is approximately 3 months. Our methodology and results are robust to various adjustments for outliers.
Pricing the Upside Potential to Downside Risk with Robert A. Jarrow (Cornell), Daniel Lebret (Cornell), Crocker H. Liu (Cornell) - under review
Pricing the Upside Potential to Downside Risk with Robert A. Jarrow (Cornell), Daniel Lebret (Cornell), Crocker H. Liu (Cornell) - under review
Semifinalist for Best Paper Award, Financial Intermediation & Institutions, FMA 2023
Best Practitioner Research Award (Non-residential), American Real Estate Society 2023, sponsored by BOMA International
Abstract: Shopping center valuations reflect the internalization of externalities where a co-tenancy provision captures the negative spillover effects from anchor departures. This real option provides temporary rent relief and early lease termination. While these clauses may enhance value in stable markets, they are often used as rent concessions during downturns lowering resale prices and rents. Consistent with theory, landlords strategically use cotenancy provisions to offset risks reinforcing their role in optimizing shopping center valuation and tenant stability.
Abstract: Shopping center valuations reflect the internalization of externalities where a co-tenancy provision captures the negative spillover effects from anchor departures. This real option provides temporary rent relief and early lease termination. While these clauses may enhance value in stable markets, they are often used as rent concessions during downturns lowering resale prices and rents. Consistent with theory, landlords strategically use cotenancy provisions to offset risks reinforcing their role in optimizing shopping center valuation and tenant stability.
Selected Works-in-Progress
Selected Works-in-Progress
Decline in Residential Mortgage Lending by National Banks: Who Are Affected with Dongshin Kim (Pepperdine)
A Theory of Durable Asset Leasing with Crocker H. Liu (Cornell)
Is Nifty Going Up Too Quickly? The Case of the Indian Stock Bubble with Robert A. Jarrow (Cornell)
Selling Houses as Minority Broker: Quantifying Diversity Discount
Decline in Residential Mortgage Lending by National Banks: Who Are Affected with Dongshin Kim (Pepperdine)
A Theory of Durable Asset Leasing with Crocker H. Liu (Cornell)
Is Nifty Going Up Too Quickly? The Case of the Indian Stock Bubble with Robert A. Jarrow (Cornell)
Selling Houses as Minority Broker: Quantifying Diversity Discount
Innovative Thinking Award - "Thinking Out of the Box", American Real Estate Society 2024, sponsored by Greenfield Advisors
Publication
Publication
Applying the Local Martingale Theory of Bubbles to Cryptocurrencies with Robert A. Jarrow (Cornell), International Journal of Theoretical and Applied Finance, 2022, Vol. 25 No. 03 2250013 1-25.
Applying the Local Martingale Theory of Bubbles to Cryptocurrencies with Robert A. Jarrow (Cornell), International Journal of Theoretical and Applied Finance, 2022, Vol. 25 No. 03 2250013 1-25.
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