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

Author

Listed:
  • Crocker Liu

    () (Cornell University)

  • Peng Liu

    () (Cornell University)

Abstract

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.

Suggested Citation

  • Crocker Liu & Peng Liu, 2013. "Is What's Bad for the Goose (Tenant), Bad for the Gander (Landlord)? A Retail Real Estate Perspective," Journal of Real Estate Research, American Real Estate Society, vol. 35(3), pages 249-282.
  • Handle: RePEc:jre:issued:v:35:n:3:2013:p:249-282
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    References listed on IDEAS

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    5. Ronald C. Rutherford, 1990. "Empirical Evidence on Shareholder Value and the Sale-Leaseback of Corporate Real Estate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(4), pages 522-529.
    6. Damodaran, Aswath & Liu, Crocker H, 1993. "Insider Trading as a Signal of Private Information," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 79-119.
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    8. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1990. "Closed-End Mutual Funds," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 153-164, Fall.
    9. McIntosh, Willard & Ott, Steven H & Liang, Youguo, 1995. "The Wealth Effects of Real Estate Transactions: The Case of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 10(3), pages 299-307, May.
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    11. Jaime R. Alvayay & Ronald C. Rutherford & William S. Smith, 1995. "Tax Rules and the Sale and Leaseback of Corporate Real Estate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(2), pages 207-238.
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    Cited by:

    1. repec:kap:jrefec:v:54:y:2017:i:3:d:10.1007_s11146-016-9575-y is not listed on IDEAS
    2. Robert H. Edelstein & Peng Liu, 2016. "The Economics of Commercial Real Estate Preleasing," The Journal of Real Estate Finance and Economics, Springer, vol. 53(2), pages 200-217, August.

    More about this item

    JEL classification:

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

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