TY - JOUR
T1 - The Rent Term Premium for Cancellable Leases
AU - Yoshida, Jiro
AU - Seko, Miki
AU - Sumita, Kazuto
N1 - Publisher Copyright:
© 2015, Springer Science+Business Media New York.
PY - 2016/5/1
Y1 - 2016/5/1
N2 - This study analyzes the rent term premium for leases that can be cancelled by the lessee. We model the lessor’s trade-off between leasing costs and the cost of cancellation options based on the recognition that many leases are cancellable by lessees, and lease markets involve significant transaction costs. We demonstrate that, regardless of the expected future rents, the rent term structure is upward-sloping when there is no leasing cost but U-shaped when the lessor faces moderate leasing costs. Residential leases in Japan, which are all cancellable by tenants, exhibit the term structure that is consistent with our calibrated model.
AB - This study analyzes the rent term premium for leases that can be cancelled by the lessee. We model the lessor’s trade-off between leasing costs and the cost of cancellation options based on the recognition that many leases are cancellable by lessees, and lease markets involve significant transaction costs. We demonstrate that, regardless of the expected future rents, the rent term structure is upward-sloping when there is no leasing cost but U-shaped when the lessor faces moderate leasing costs. Residential leases in Japan, which are all cancellable by tenants, exhibit the term structure that is consistent with our calibrated model.
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U2 - 10.1007/s11146-015-9528-x
DO - 10.1007/s11146-015-9528-x
M3 - Article
AN - SCOPUS:84941729172
SN - 0895-5638
VL - 52
SP - 480
EP - 511
JO - Journal of Real Estate Finance and Economics
JF - Journal of Real Estate Finance and Economics
IS - 4
ER -