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Abstract
Previous research finds evidence that tax factors motivate the participants in leasing transactions. Tax-arbitrage arguments predict that leasing participants gain when the lessor's tax rate exceeds that of the lessee. This research employs a sample of effectively tax-exempt Real Estate Investment Trust (REIT) lessors to explore alternative leasing motives. Changes in REIT qualification rules are examined to develop an Agency-Cost and competing Income-Retention Hypothesis for lessors. The rules and changes suggest that REIT management has the incentive, motive, and opportunity to make real estate investments quickly. The evidence developed is consistent with agency costs arising from the possibility that they may overpay for properties.