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Now, a clear distinction between European REITs and REOCs has to be made: In order to qualify as a REIT, a real estate company must fulfil certain requirements set forth in national legislation.
Eichholtz and Kok (2007) argue that leverage restrictions put REITs into a disadvantageous position in comparison with other property investments: The amount of debt allowed in REIT operations is restricted unlike in the case of REOCs.
As can be seen, REITs and REOCs operate in very different operational environments.
Of the 366 listed real estate companies nearly two thirds are set up as REOCs (239 companies) and a third as REITs (127 companies).
Since growth is generally positively related to shareholder returns, investors should prefer REOCs to REITs based on this factor (Delcoure and Dickens, 2004).
The natural reason for this disparity observed between the two continents is that the REIT vehicle was introduced in the US already in the 1960s, whereas REOCs in the US market have been a somewhat scarcer vehicle.
As discussed, the vast majority of the preceding research on public real estate returns has typically been focused on analyzing either REITs or REOCs, not both.
Even though both REITs and REOCs invest almost exclusively in real estate related assets, REITs and REOCs seem to have different systematic risk levels: The authors claim REOCs exhibiting higher levels of systematic risk.
The broad stock market went through a serious down cycle during the study period: Therefore again, of primary interest are the relative characteristics of REOCs and REITs (and other assets), not the nominal values the variables have been exhibiting per se.
REOCs did not do well either with an annual return of -14.
84% (lowest in the group), whereas the respective figure of REOCs was 27.
superior returns) than REOCs, but in terms of volatility REOCs have had the upper hand.