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Tenant Riskiness, Contract Length, and the Term Structure of Commercial Leases

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  • Jan K. Brueckner
  • Stuart S. Rosenthal

Abstract

This paper explores the connection between tenant riskiness, commercial lease length and the term structure of lease contracts. Theory shows that the possibility of default on a long-term lease generates a risk/lease-length connection. The empirical work uses a large CompStak lease dataset combined with tenant characteristics (including risk) from Dun & Bradstreet. Regressions show that lease length is inversely related to the D&B risk measures, as predicted, and that risky tenants pay a higher rent premium for long-term contracts than low-risk tenants. The presence of such tenants thus raises the slope of the term structure of commercial rents.

Suggested Citation

  • Jan K. Brueckner & Stuart S. Rosenthal, 2022. "Tenant Riskiness, Contract Length, and the Term Structure of Commercial Leases," CESifo Working Paper Series 10189, CESifo.
    • Handle: RePEc:ces:ceswps:_10189
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    References listed on IDEAS

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    More about this item

    Keywords

    lease length; tenant riskiness; rent term structure;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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