Kariya, T., Kato, Y., Uchiyama, T. and Suwabe, T. (2003)
Valuation of Rental Commercial Retail Properties: Tenant Management and Real Options

This paper 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 problem 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fs business, and one of two tenant-replacement rules for return and risk enhancement. By Monte Carlo simulation we give an optimal strategy for this problem.

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