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Estimating effective rents

Estimating effective rents Develops an approach to estimating effective rents based on the assumption that the net present value of incentives should be zero. Investors should not be able to profit from lease incentive packages if they are valued correctly because they should have no influence on capital values. If ad hoc methods of valuation are used in practice then there may be opportunities to identify mispriced properties. Presents a model which recognizes that different aspects of the cashflows can carry different risk and should be valued accordingly. Suggests that although the resulting model is more complex than generally found in practice it can nevertheless easily be solved with a spreadsheet. Develops the economic and financial principles involved rather than focusing on rule of thumb procedures. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Property Finance Emerald Publishing

Estimating effective rents

Gerald R. Brown
Journal of Property Finance , Volume 6 (2): 10 – Jun 1, 1995
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10 pages

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Publisher
Emerald Publishing
Copyright
Copyright © 1995 MCB UP Ltd. All rights reserved.
ISSN
0958-868X
DOI
10.1108/09588689510096079
Publisher site
See Article on Publisher Site

Abstract

Develops an approach to estimating effective rents based on the assumption that the net present value of incentives should be zero. Investors should not be able to profit from lease incentive packages if they are valued correctly because they should have no influence on capital values. If ad hoc methods of valuation are used in practice then there may be opportunities to identify mispriced properties. Presents a model which recognizes that different aspects of the cashflows can carry different risk and should be valued accordingly. Suggests that although the resulting model is more complex than generally found in practice it can nevertheless easily be solved with a spreadsheet. Develops the economic and financial principles involved rather than focusing on rule of thumb procedures.

Journal

Journal of Property Finance – Emerald Publishing

Published: Jun 1, 1995

Keywords: Discounted cash flow; Financial risk; Incentives; Lease renewal; Leasing; Modelling; Rent review; Valuation

References

  • Proof that properly anticipated prices fluctuate randomly
    Samuelson P.
  • Lease incentives and inducements: a question of capital or rental incentives?
    Crosby N.
  • Lease incentives and effective rents: a decapitalisation model
    Jefferies R.