It is well established that value firms with high book-to-market (BM) ratios earn a significant premium over growth firms with low BM ratios around the world, yet considerable debate exists about whether the return differential reflects compensation for risk or mispricing. Under mispricing explanations, prices of growth (value) stocks signal systematically optimistic (pessimistic) expectations; thus, the value-growth returns should be concentrated among firms with existent market expectation errors. Classifying real estate firms based upon whether expectations implied by current pricing multiples are congruent with their operating flexibility, we document that value-growth returns are concentrated among firms with ex ante market expectations, but absent among firms without such errors.