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Stickiness of Rental Rates and Developers’ Option Exercise Strategies

  • Rose Lai

    ()

  • Ko Wang

    ()

  • Jing Yang

    ()

Registered author(s):

In this study we incorporate sticky rents into a real options model to rationalize the widely documented overbuilding puzzle in real estate markets. Given the assumption that developers’ objective function is to maximize total revenue by selecting an optimal occupancy level, our model provides a better explanation of the phenomena we observed in the real world than the traditional market-clearance based real options models. We also show that developers’ exercise strategies can be affected by the size and the type of property markets. In other words, developers’ exercise strategies could differ among markets and under different conditions. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11146-007-9004-3
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Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 34 (2007)
Issue (Month): 1 (January)
Pages: 159-188

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Handle: RePEc:kap:jrefec:v:34:y:2007:i:1:p:159-188
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