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Leasing Versus Purchase of Corporate Real Property: Leases with Residual Equity Interests

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    Abstract

    This article reports the informal research findings from personal interviews with more than thirty corporate real estate executives in regard to leasing corporate operating space while retaining an equity interest in the residual value of the leased property. There appears to be general agreement among "excellent" corporate real estate executives that occupancy costs can often be reduced through leases with equity interests below what is generally possible with either (1) a straight lease of space or (2) an outright purchase (i.e., borrow to buy). Four reasons discussed with corporate real estate executives for the increasing use of leases with residual equity interests are reviewed. Finally, theoretical support is suggested for why such leases, rather than being just the outgrowth of the current corporate space glut, may actually reflect a long-term trend in the way large companies "finance" operating space needs.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol06n01/v06p079.pdf
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    Bibliographic Info

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

    Volume (Year): 6 (1991)
    Issue (Month): 1 ()
    Pages: 79-86

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    Handle: RePEc:jre:issued:v:6:n:1:1991:p:79-86

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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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    Web page: http://www.aresnet.org/

    Order Information:
    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. Myers, Stewart C & Dill, David A & Bautista, Alberto J, 1976. "Valuation of Financial Lease Contracts," Journal of Finance, American Finance Association, vol. 31(3), pages 799-819, June.
    2. Lewellen, Wilbur G & Long, Michael S & McConnell, John J, 1976. "Asset Leasing in Competitive Capital Markets," Journal of Finance, American Finance Association, vol. 31(3), pages 787-98, June.
    3. Johnson, Robert W & Lewellen, Wilbur G, 1972. "Analysis of the Lease-or-Buy Decision," Journal of Finance, American Finance Association, vol. 27(4), pages 815-23, September.
    4. Long, Michael S., 1977. "Leasing and the Cost of Capital," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 579-586, November.
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    Cited by:
    1. Linda L. Johnson & Terry Keasler & Stellan Lundstrom, 1993. "An Industry Profile of Corporate Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 8(4), pages 445-474.
    2. Christopher A. Manning & Stephen E. Roulac, 1996. "Structuring the Corporate Real Property Function for Greater "Bottom Line" Impact," Journal of Real Estate Research, American Real Estate Society, vol. 12(3), pages 383-396.
    3. Dirk Brounen & Piet Eichholtz, 2005. "Corporate Real Estate Ownership Implications: International Performance Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 30(4), pages 429-445, June.

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