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Valuation of Rental Commercial Retail Properties : Tenant Management and Real Options

Author

Listed:
  • Takeaki Kariya

    (Institute of Economic Research, Kyoto University)

  • Yasuyuki Kato

    (Institute of Economic Research, Kyoto University and Nomura Securities Co.Ltd.)

  • Tomonori Uchiyama

    (Nomura Securities Co.Ltd.)

  • Takashi Suwabe

    (Nomura Securities Co.Ltd.)

Abstract

This papaer formulates a tenant management problem for a commercial retail real estate such as shopping center, provides an analytical framework for deriving the probability distribution of the sum of a discounted cash flow stochastically generated through the tenant management and finds an optimal strategy for tenant-replacement management and lease agreement structure on rent. More specifically, we formulate the problm of valuing the net present value of future net revenues from a commercial retail property with tenant management and provide a valuation model for management decision making. The revenues fluctuate with market rent variations and management processes. In our framework a property manager is required to choose an optimal mix of fixed rent and variable rent linked to sales of tenant's business, and one of two tenant-replacement reules for return and risk enhancement. By Monte Carlo simulation we give an optimal strategy for this problem.

Suggested Citation

  • Takeaki Kariya & Yasuyuki Kato & Tomonori Uchiyama & Takashi Suwabe, 2003. "Valuation of Rental Commercial Retail Properties : Tenant Management and Real Options," KIER Working Papers 566, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:566
    as

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