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

Listed author(s):
  • Crocker Liu


    (Cornell University)

  • Peng Liu


    (Cornell University)

Registered author(s):

    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.

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

    Volume (Year): 35 (2013)
    Issue (Month): 3 ()
    Pages: 249-282

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    Handle: RePEc:jre:issued:v:35:n:3:2013:p:249-282
    Contact details of provider: 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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    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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