Journal of Real Estate Finance and Economics, 3:307-322 (1990) 9 1990 Kluwer Academic Publishers Corporate Real Estate's Impact on the Takeover Market BRENT WILLIAM AMBROSE Assistant Professor of Real Estate Finance, School of Business Administration, University of Wisconsin-- Milwaukee, Milwaukee, WI 53201 Abstract This article explores the issues and problems associated with corporate real estate ownership as viewed through the takeover market. The perception held by managers is that corporate real estate assets are unique, specialized assets. This perception conflicts with financial theory which states that the market values all corporate assets based only on their expected future cash flows. Thus corporate real estate assets are priced according to their cash flows and are like other corporate assets. This study tests the hypothesis that corporate real estate is a specialized asset by examining the impact real estate assets have on the takeover market. The study uses a logit regression model in order to attempt to predict which firms become takeover targets. If corporate real estate in general is a specialized asset, then real estate is expected to be an important variable in predicting takeover targets. Although the logit model has little predictive accuracy, results from the prediction model suggest that corporate real estate plays a significant part in determining the likelihood of a firm's becoming a takeover target. The greater the real estate holdings, the greater the likelihood of a firm's becoming a takeover target. Key words: Corporate real estate, Takeovers, Efficient markets 1. Introduction Due to the dramatic increase in mergers and acquisitions in recent years, takeovers have received considerable attention in the popular press as well as the academic community. 1 Yet, very little attention in the academic community is given to the importance of corporate real estate assets in the takeover market. 2 Managers often claim that a primary motivation for corporate raiders is the interest in acquiring the possibly undervalued real assets of target firms. This article examines the impact of corporate real estate on the takeover market, in particular by examining the impact real assets have on the probability that a firm becomes a takeover target. Current financial theory rejects the view that corporate real estate has an impact on take- overs. According to the efficient market hypothesis, corporate stock prices reflect all publicly available information about the firm's cash flows. In discussing market efficiency, we must distinguish between informational and productive efficiency. Informational efficiency states that an asset's market price fully reflects all its publicly available information, where the market values the asset based on its discounted expected future cash flows and makes no distinction between different asset utilizations. Productive efficiency deals with the alloca- tion of resources, where assets are constantly re-evaluated to determine their most efficient