An Equilibrium Analysis of Real Estate Leases
AbstractThis article provides a unified equilibrium approach to valuing commercial real estate leases. Using a game-theoretic variant of real options analysis, the underlying real estate asset market is modeled as a continuous-time Nash equilibrium, where developers make construction decisions under demand uncertainty. Then, using the economic notion that leasing represents the purchase of the use of the asset over a specified time, I use a contingent-claims approach to value many of the most common leasing arrangements. The model provides equilibrium values for purchase options, forward leases, gross and net leases, cancellation options, ground leases, escalation clauses, lease concessions, and sale-leasebacks.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 78 (2005)
Issue (Month): 4 (July)
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Web page: http://www.journals.uchicago.edu/JB/
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- Jyh-Bang Jou & Tan (Charlene) Lee, 2009. "How Does a Development Moratorium Affect Development Timing Choices and Land Values?," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 301-315, October.
- Seko, Miki & Sumita, Kazuto & Yoshida, Jiro, 2012.
"Downward-sloping term structure of lease rates: a puzzle,"
37395, University Library of Munich, Germany.
- Miki Seko & Kazuto Sumita & Jiro Yoshida, 2012. "Downward-Sloping Term Structure of Lease Rates: A Puzzle," Keio/Kyoto Joint Global COE Discussion Paper Series 2011-042, Keio/Kyoto Joint Global COE Program.
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