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Tenant Management and Lease Valuation for Retail Properties: A Real Options Approach


  • Takeaki Kariya

    () (Graduate School of Business, Meiji University, KIER, Kyoto University and RIETI,Japan)

  • Yasuyuki Kato

    (KIER, Kyoto University, Nomura Securities Co. Ltd., Japan)

  • Tomonori Uchiyama

    (Nomura Securities Co. Ltd., Japan)

  • Takashi Suwabe

    (Nomura Securities Co. Ltd., Japan)


In this paper, we formulate a tenant management problem for retail properties, such as shopping centers, provide an analytical framework for deriving the probability distribution of the sum of discounted future cash flows stochastically generated through tenant management, and find an optimal lease agreement structure and strategy for tenant-replacement management. More specifically, we formulate the problem of valuing the net present value of future net income from a retail property with tenant management and provide a valuation model for management decision making. The income fluctuates with market rent variations and management processes. In our framework, a property manager is required to choose an optimal mix of fixed rent and variable rent linked to tenant sales, and one of two tenant-replacement rules for return and risk enhancement. Finally, we provide an optimal strategy for this problem using Monte Carlo simulation, through which we value the real options of adopting an optimal strategy for percentage rent and tenant replacement made available by the New House Lease Law inare consistent with implications that short interests in REITs represent attempts to make short-term profits rather than general bearishness regarding real estate investments.

Suggested Citation

  • Takeaki Kariya & Yasuyuki Kato & Tomonori Uchiyama & Takashi Suwabe, 2005. "Tenant Management and Lease Valuation for Retail Properties: A Real Options Approach," International Real Estate Review, Asian Real Estate Society, vol. 8(1), pages 44-82.
  • Handle: RePEc:ire:issued:v:08:n:01:2005:p:44-82

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    References listed on IDEAS

    1. John D. Benjamin & Glenn W. Boyle & C. F. Sirmans, 1990. "Retail Leasing: The Determinants of Shopping Center Rents," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 302-312.
    2. Peter F. Cowell & Henry J. Munneke, 1998. "Percentage Leases and the Advantages of Regional Malls," Journal of Real Estate Research, American Real Estate Society, vol. 15(3), pages 239-252.
    3. Miceli, Thomas J. & Sirmans, C. F., 1995. "Contracting with spatial externalities and agency problems The case of retail leases," Regional Science and Urban Economics, Elsevier, vol. 25(3), pages 355-372, June.
    4. Benjamin, John D. & Boyle, Glenn W. & Sirmans, C. F., 1992. "Price discrimination in shopping center leases," Journal of Urban Economics, Elsevier, vol. 32(3), pages 299-317, November.
    5. William C. Wheaton, 2000. "Percentage Rent in Retail Leasing: The Alignment of Landlord-Tenant Interests," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(2), pages 185-204.
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    1. repec:spr:fininn:v:2:y:2016:i:1:d:10.1186_s40854-016-0030-0 is not listed on IDEAS

    More about this item


    short interest; real estate investment trusts (REITs);

    JEL classification:

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


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