Renovating America : When and Why Institutional Investors Renovate and Expand Commercial Real Estate

The renovation and expansion of existing commercial properties constitute important investments into the economic infrastructure. Such investments can facilitate economic growth if made at appropriate times and scales, but can also lead to a waste of economic resources and exacerbate market volatility. This paper aims to shed light on this topic by empirically answering two fundamental questions. First, what economic variables may affect the likelihood for institutional investors to make capital investments in existing commercial properties? Second, are investors expectation of future market and economic conditions rational and accurate, in the sense that increases in investments, which are likely driven by more optimistic expectations, precede actual market expansion and economic growth? Answers to these questions help establish stylized facts regarding investors renovation/expansion decisions, and help analyze the economic consequences and test the rationality of investors expectations regarding future economic conditions