Commercial Real Estate Valuation, Development and Occupancy under Leasing Uncertainty

36 Pages Posted: 16 Feb 2007

See all articles by Richard J. Buttimer

Richard J. Buttimer

University of North Carolina (UNC) at Charlotte - Department of Finance & Business Law

Steven H. Ott

University of North Carolina (UNC) at Charlotte - Department of Finance & Business Law

Abstract

A model of commercial property valuation is developed where individual property owners are price takers and tenants randomly arrive and depart. Spot lease and tenant reservation prices are stochastic and correlated and can divert from but eventually revert back to market equilibrium. Within this framework we examine built property values and vacancy rates for varying parameter sets representing differing markets and economic conditions. We also examine how potential and existing vacancies, spot lease prices and tenant reservation prices feed back into development decisions. We demonstrate how preleasing acts as a hedge to the developer against the risk of leasing uncertainty.

Suggested Citation

Buttimer, Richard J. and Ott, Steven H., Commercial Real Estate Valuation, Development and Occupancy under Leasing Uncertainty. Real Estate Economics, Vol. 35, No. 1, pp. 21-56, Spring 2007, Available at SSRN: https://ssrn.com/abstract=963505 or http://dx.doi.org/10.1111/j.1540-6229.2007.00181.x

Richard J. Buttimer (Contact Author)

University of North Carolina (UNC) at Charlotte - Department of Finance & Business Law ( email )

9201 University City Blvd.
Charlotte, NC 28223
United States
704 687-6219 (Phone)

Steven H. Ott

University of North Carolina (UNC) at Charlotte - Department of Finance & Business Law ( email )

9201 University City Blvd.
Charlotte, NC 28223
United States
704-687-2744 (Phone)
704-687-6987 (Fax)

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