Property investor behaviour: qualitative analysis of a very large transaction
| Date | 20 September 2013 |
| Pages | 522-544 |
| DOI | https://doi.org/10.1108/JPIF-09-2012-0043 |
| Published date | 20 September 2013 |
| Author | Peter O¨hman,Bo Söderberg,Stig Westerdahl |
| Subject Matter | Property management & built environment |
ACADEMIC PAPER
Property investor behaviour:
qualitative analysis of a very
large transaction
Peter O
¨hman
Centre for Research on Economic Relations, Department of Business,
Economics and Law, Mid Sweden University, Sundsvall, Sweden
Bo So
¨derberg
Institute for Housing and Urban Research, Uppsala University,
Ga
¨yle, Sweden, and
Stig Westerdahl
Department of Urban Studies, Malmo
¨University, Malmo
¨, Sweden
Abstract
Purpose – This explorative case study focuses on property investment decision making from a
behavioural perspective at the very microlevel. The study contributes to an understanding of how
property investors manage the decision-making process, including organizational aspects, property
valuation, and financial management.
Design/methodology/approach – Applying a qualitative approach, the authors analyse a very
large transaction that occurred in the Swedish property market in 2008. In an open bid transaction,
properties of Vasakronan Corporation were sold for SEK41.1 billion (e4.3 billion). Managers in both
the purchasing company and the consortium making the second highest bid were interviewed.
The authors were encouraged to speak freely, but also used an interview guide with a number of
themes as well as specific questions.
Findings – The findings reveal the characteristics of two types of property investment
decision-making behaviour with respect to how actors organize the work, use external consultants,
value the properties, andsecure the financing necessary for a final bid.
Practical implications – Creditors, analysts, and appraisers may benefit from the insight that
property investment decision makers can use different approaches in determining their final bids.
Originality/value – The authors use a qualitative empirical approach in analysing an extraordinarily
large property transaction from a buyer’s point of view and presents detailed information about this
transaction as well as general insights into actual behaviour rarely examined in the property investment
literature.
Keywords Income property,Investment decision-making,Large transaction, Qualitativeapproach,
Investors, Behaviour
Paper type Research paper
1. Introduction and aim
An extensive body of research examines optimal investment decision making in the
income property market. Standard textbooks (Geltner et al., 2007) provide many analytical
tools-based primarily on financial economics, and considerable indirect information on
certain aspects of investment decisions has been derived by quantitatively analysing
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
Received September 2012
Accepted May 2013
Journal of Property Investment &
Finance
Vol. 31 No. 6, 2013
pp. 522-544
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-09-2012-0043
JPIF
31,6
522
property transactions (Sirmans and Worzala, 2003). However, documentation and analyses
of actual decision-making processes at the microlevel in property companies are still limited.
Growing scholarly interest in mergers and acquisitions (Cartwright and
Schoenberg, 2006) indicates that large transactions are becoming more common in
business. Large property transactions often separate investment behaviour in a
specific case from an idealized investment strategy schema, and decision makers are
more likely to systematically analyse such investments than small standard ones.
In July 2008, when the international financial market was severely hurt by the
American sub-prime mortgage crisis, a remarkably largeproperty transaction took place
in Sweden.It has been referredto as the largest single transactionever made in the Swedish
property market and rough estimates indicate that it might have been the largest such
transaction in Europe that year. The transaction price was SEK41.1 billion (e4.3 billion),
corresponding to 2 per cent of the total market value of all urban income property in
Sweden at the time. The company sold was owned by the Swedish Government andthe
transaction wasundertaken pursuant to a government privatization policy.
The transaction was analysed in a performance audit report by the Swedish
National Audit Office (Riksrevisionen, 2010), which focused on the government’s
administrative work throughout the process. We have chosen to view this transaction
as primarily a property transaction. Our focus is on the pre-merger activities, analysing
how property investors actually behave with respect to the main pro blem areas
generally encountered by such investors. This explorative case study contributes to an
understanding of how property investors manage the investment decision-mak ing
process, including how they: handle the information of varying quality that becomes
available during this intense process, value the properties for sale and arrive at a bid
price, secure the financing necessary to close the deal under uncertainty as to the final
transaction price, handle competition from other bidders, and secure business secrets
throughout the process. Rather than arriving at conclusive findings, we generate input
to advance the theory of property investment decision making.
The remainder of the paper is organized as follows. First, we briefly review other
studies of property investment behaviour. Thereafter, we present our methodological
approach. In the two main sections of the paper, the empirical findings are reported and
analysed. The paper closes with a concluding discussion. The interview guide is
presented in the Appendix.
2. Review of relevant literature
Property studiesare generally based on standardassumptions of mainstreameconomics:
rationaldecision makers with stable preferencesare acting on a perfect marketwith many
competitors,accessible information,and homogenous products.The practices of property
professionals are generally also based on such assumptions. However, alternative
approaches may improve our understanding of property markets. For example, Mooya
(2009) identifiesintrinsic contradictions in the standardview of the appraisal profession:
valuations are really useful only when actual market price information is not available;
however, appraisers need price information to estimatemarket values, so valuations tend
to be treated as “market information” only in markets in which they do not in fact
constitute such information. This is a somewhat more fundamental critique than that
found in the appraisal bias literature, including in analyses of appraiser abilityto make
satisfactoryvaluationscompared with subsequentsales prices (Matysiakand Wang, 1995;
Property
investor
behaviour
523
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