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Is What's Bad for the Goose (Tenant), Bad for the Gander (Landlord)? A Retail Real Estate Perspective

Author

Listed:
  • Crocker Liu

    (Cornell University)

  • Peng Liu

    (Cornell University)

Abstract

We explore the economic dependence and financial market feedback effects among firms with economic linkages, notably landlord-tenant when shocks occur to the system. In particular, we examine 157 major tenant bankruptcy announcements of retail real estate firms over the 2000 to 2010 period. The contracting mechanism associated with retail leases provides several unique features such as percentage rents and co-tenancy clauses that are absent in other type of leases. We find that in a good economy, a tenant bankruptcy has a less negative or more positive effect on a landlord’s stock return, which is consistent with the growth option hypothesis. We also find that landlords who have properties located in markets with a highly diversified economic base are more likely to exercise the growth option given a tenant departure and thus realize higher stock returns.

Suggested Citation

  • Crocker Liu & Peng Liu, 2013. "Is What's Bad for the Goose (Tenant), Bad for the Gander (Landlord)? A Retail Real Estate Perspective," Journal of Real Estate Research, American Real Estate Society, vol. 35(3), pages 249-282.
    • Handle: RePEc:jre:issued:v:35:n:3:2013:p:249-282
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    Citations

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    Cited by:

    1. Chen Zheng & Bing Zhu, 2021. "Concentrate or diversify? The relationship between tenant concentration and REIT performance," Review of Quantitative Finance and Accounting, Springer, vol. 57(3), pages 899-927, October.
    2. Joseph Williams, 2014. "Percentage Rents with Agency," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(4), pages 791-828, December.
    3. Jianfu Shen, 2021. "Distress Risk and Stock Returns on Equity REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 62(3), pages 455-480, April.
    4. Ricardo Correa & Jack Liebersohn & Martin Sicilian, 2022. "Debt Overhang and the Retail Apocalypse," International Finance Discussion Papers 1356, Board of Governors of the Federal Reserve System (U.S.).
    5. Ryan G. Chacon, 2023. "Tenant Concentration in REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 66(3), pages 636-679, April.
    6. Ran Lu-Andrews, 2017. "Tenant Quality and REIT Liquidity Management," The Journal of Real Estate Finance and Economics, Springer, vol. 54(3), pages 272-296, April.
    7. Niina Leskinen & Jussi Vimpari & Seppo Junnila, 2020. "A Review of the Impact of Green Building Certification on the Cash Flows and Values of Commercial Properties," Sustainability, MDPI, vol. 12(7), pages 1-22, March.
    8. Honghui Chen & David M. Harrison & Mahsa Khoshnoud, 2020. "Investors’ Limited Attention: Evidence from REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 61(3), pages 408-442, October.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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