Micro Cap Assets versus Macro Cap Assets: The Effect of Asset Size on Financial Performance in Real Estate

Abstract

This study explored the investment thesis that micro assets outperform macro assets. Micro assets include office and industrial real estate assets acquired at a price between $1 – $10 million. An asset acquired at a cost higher than $10 million is a macro asset. The study used a data sample of 1,025 office and industrial real estate asset transactions collected from the databases CompStak and Co-Star. Data were collected from 1993 to 2016, representing approximately 38 cities across different market tiers. The results obtained from the analysis, with a 90% confidence level, showed that micro assets yielded an 8.76% higher IRR than macro assets. Similarly, the study found, with a 99% confidence level, that the change in the value of micro assets is 15.97% higher than macro assets.

TOPICS: Private equity, real estate, statistical methods, performance measurement