Corporate real estate financing methods: A statistical study of corporations’ choices

This study examines the financing methods used by corporations to acquire real estate for their operations. It also examines the opinion of managers about the factors that they consider in choosing financing methods. The data were provided by a survey questionnaire that was sent to members of the International Association of Corporate Real Estate Executives. It was found that companies rely on internal financing (operating cash flows) and external financing such as long‐term leasing, joint ventures, property mortgages and sale/leaseback arrangements. The top‐ranked methods of finance include operating cash flows, property mortgages, leasing and sales/leasebacks. Use of real estate investment trusts, collateralised mortgage obligations and mortgage‐backed securities were the lowest‐ranked forms of financing. Managers tend to look at tax advantages of debt and availability of cash flows in deciding which financing methods to use, rather than theoretical corporate finance factors such as bankruptcy cost. There were significant differences in opinion by industry and by company size regarding the use of cash flows and the impact of debt financing on common stock prices.