Under-pricing the default risk is inevitable in a market with many lenders. Our study examines the impact of under-priced default risk on investment in the REIT sector where firms’ investment is highly sensitive to changes in credit market conditions. We find that REITs exploiting under-priced default risk have a higher level of investment than REITs that do not because the former could obtain access to loans having low rates of interest. In addition, REITs prioritize the choice of investment over the leverage choice. In contrast, we find evidence that under-priced default risk does not have a significant impact on non-REITs’ investment while their leverage does because non-REITs desire to reduce costs of financial distress.