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Optimal holding period In Real Estate Portfolio

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Author Info
Michel Baroni () (ESSEC Business School)
Fabrice Barthélémy () (Université de Cergy-Pontoise (Théma))
Mahdi Mokrane () (IXIS-AEW Europe)

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Abstract

This paper considers the use of simulated cash flows to determine the optimal holding period in real estate portfolio to maximize its present value. The traditional DCF approach with an estimation of the resale value through a growth rate of the future cash flow does not let appear this optimum. However, if the terminal value is calculated from the trend of a diffusion process of the price, an optimum may appear under certain conditions. Finally we consider the sensitivity of the optimal holding period to the different parameters involved in the cash flow estimations. This methodology may be applied in commercial valuation and enables to get an optimal holding period for a given portfolio.

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Publisher Info
Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2006-21.

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Date of creation: 2006
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Handle: RePEc:ema:worpap:2006-21

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Related research
Keywords: valuation DCF optimal holding period commercial property

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  1. Atkins, Allen B & Dyl, Edward A, 1997. " Transactions Costs and Holding Periods for Common Stocks," Journal of Finance, American Finance Association, vol. 52(1), pages 309-25, March. [Downloadable!] (restricted)
  2. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December. [Downloadable!] (restricted)
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This page was last updated on 2008-8-11.

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