We study spatial variation in residential real estate returns using NCREIF total return data on multifamily properties. Across cities, risk exposure to the national apartment index—measured by beta—is priced in Fama-MacBeth regressions. Within metropolitan areas, excess returns increase by 3.26 basis points per mile per quarter from the primary employment center. The distance gradient survives controls for Census 2000 neighborhood demographics, retaining 62% of its baseline magnitude. We propose an operating leverage mechanism: locations with lower rents bear proportionally higher fixed costs, amplifying their exposure to aggregate shocks. Two tests deliver restrictions consistent with the model. First, the interaction of location-level operating leverage and the consumption–wealth ratio predicts next-quarter returns (p = 0.022), with an economic magnitude of 123 basis points over the cycle; placebo interactions are insignificant. Second, a calibration maps the model-implied cap rate spread (42.8 basis points per quarter) against an observed spread of 15 basis points.
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