Domino Effect: An Exposition of Systemic Risk for Financing Infrastructure through Real Estate Investment Trusts

Delivering infrastructure assets capitalized by real estate investment trusts (REITs) is emerging and challenging due to the complexities and uncertainties that characterize the project lifecycle. Having effective management of risks in place is key to project success. However, there remains limited knowledge about the dynamic mechanism of the infrastructure-REIT-related risks. The result has hindered the delivery process and investors' benefits. Acknowledging this void, we identify a set of risk factors with a reference to the five categories identified from a case study of China's infrastructure REITs, and then examine them using the directed-weighted-network risk assessment model followed by the dynamic propagation paradigm. The results reveal the front-end attribute of those risks including the principal agent, macroenvironment, and policies, and indicate that identifying the anomalies early can minimize the scale of risk propagation. The contribution of this study is twofold: (1) we originally develop the risk network for explaining the interactive mechanism of the infrastructure-REIT risks; and (2) we identify the relevant risk dynamic propagation pattern.