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Leasing Versus Purchase of Corporate Real Property: Leases with Residual Equity Interests

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Abstract

This article reports the informal research findings from personal interviews with more than thirty corporate real estate executives in regard to leasing corporate operating space while retaining an equity interest in the residual value of the leased property. There appears to be general agreement among "excellent" corporate real estate executives that occupancy costs can often be reduced through leases with equity interests below what is generally possible with either (1) a straight lease of space or (2) an outright purchase (i.e., borrow to buy). Four reasons discussed with corporate real estate executives for the increasing use of leases with residual equity interests are reviewed. Finally, theoretical support is suggested for why such leases, rather than being just the outgrowth of the current corporate space glut, may actually reflect a long-term trend in the way large companies "finance" operating space needs.

Suggested Citation

  • Christopher A. Manning, 1991. "Leasing Versus Purchase of Corporate Real Property: Leases with Residual Equity Interests," Journal of Real Estate Research, American Real Estate Society, vol. 6(1), pages 79-86.
    • Handle: RePEc:jre:issued:v:6:n:1:1991:p:79-86
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    1. Long, Michael S., 1977. "Leasing and the Cost of Capital," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 579-586, November.
    2. Lewellen, Wilbur G & Long, Michael S & McConnell, John J, 1976. "Asset Leasing in Competitive Capital Markets," Journal of Finance, American Finance Association, vol. 31(3), pages 787-798, June.
    3. Johnson, Robert W & Lewellen, Wilbur G, 1972. "Analysis of the Lease-or-Buy Decision," Journal of Finance, American Finance Association, vol. 27(4), pages 815-823, September.
    4. Myers, Stewart C & Dill, David A & Bautista, Alberto J, 1976. "Valuation of Financial Lease Contracts," Journal of Finance, American Finance Association, vol. 31(3), pages 799-819, June.
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    Cited by:

    1. Chris Manning & Stephen E. Roulac, 2001. "Lessons from the Past and Future Directions for Corporate Real Estate Research," Journal of Real Estate Research, American Real Estate Society, vol. 22(1/2), pages 7-58.
    2. Christopher A. Manning & Stephen E. Roulac, 1996. "Structuring the Corporate Real Property Function for Greater "Bottom Line" Impact," Journal of Real Estate Research, American Real Estate Society, vol. 12(3), pages 383-396.
    3. Linda L. Johnson & Terry Keasler & Stellan Lundstrom, 1993. "An Industry Profile of Corporate Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 8(4), pages 445-474.
    4. Dirk Brounen & Piet Eichholtz, 2005. "Corporate Real Estate Ownership Implications: International Performance Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 30(4), pages 429-445, June.

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    More about this item

    JEL classification:

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

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