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How Tax Credits Have Affected the Rehabilitation of the Boston Office Market

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  • James D. Shilling

    ()
    (University of Wisconsin, School of Business, Madison, Wisconsin 53706)

  • Kerry D. Vandell

    ()
    (University of Wisconsin, School of Business, Madison, Wisconsin 53706)

  • Ruslan Koesman

    (University of Indonesia, Jakarta, Indonesia)

  • Zhenguo Lin

    ()
    (University of Wisconsin, School of Business, Madison, Wisconsin 53706)

Abstract

This paper is concerned with the extent to which rehabilitation tax credits affect the conditional probability of commercial real estate rehabilitation. Very little has been written about the rehabilitation tax credit, despite the fact that it has been a feature of the U.S. tax code since 1978. Our analysis suggests that rehabilitation tax credits have been a significant determinant of the conditional probability of rehabilitation in the Boston office market. We also find that a significant portion of rehabilitation tax-credit investment is investment that would have been invested elsewhere, about 60 to 65 percent in certain periods, but rising to as high as 90 percent in other periods. We find that the rehabilitation tax credit has a significant and substantial influence on the conditional probability of rehabilitation. We also find that the greatest amount of slippage, not too surprisingly, generally occurs when the tax credit is low and when the gain from rehabilitation before the tax credit is high.

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Bibliographic Info

Article provided by American Real Estate Society in its journal journal of Real Estate Research.

Volume (Year): 28 (2006)
Issue (Month): 4 ()
Pages: 321-348

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Handle: RePEc:jre:issued:v:28:n:4:2006:p:321-348

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Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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  1. John F. Kain, 1989. "The Economics of Architecture and Urban Design: Some Preliminary Findings," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 261-266.
  2. Titman, Sheridan, 1985. "Urban Land Prices under Uncertainty," American Economic Review, American Economic Association, vol. 75(3), pages 505-14, June.
  3. Hendershott, Patric H. & Cheng Hu, Sheng, 1981. "Inflation and extraordinary returns on owner-occupied housing: Some implications for capital allocation and productivity growth," Journal of Macroeconomics, Elsevier, vol. 3(2), pages 177-203.
  4. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 1-74.
  5. Kerry D. Vandell & Jonathan S. Lane, 1989. "The Economics of Architecture and Urban Design: Some Preliminary Findings," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 235-260.
  6. Murphy, Kevin M & Topel, Robert H, 1985. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 370-79, October.
  7. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
  8. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Theory," Econometrica, Econometric Society, vol. 52(3), pages 681-700, May.
  9. Grenadier, Steven R, 1996. " The Strategic Exercise of Options: Development Cascades and Overbuilding in Real Estate Markets," Journal of Finance, American Finance Association, vol. 51(5), pages 1653-79, December.
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