Valuing and Pricing Retail Leases with Renewal and Overage Options

We consider retail leases with landlord overages options, with tenant renewal options, with both and with neither. We illustrate how the ratio of initial expected sales to the sales threshold can be manipulated to equate the value of the landlord overage options to that of the tenant renewal option at the same initial rent. As a result, not only are the values of the dual option overage plus renewal lease and no option leases are equal, but the cumulative distributions of potential IRRs on the two leases are nearly identical, suggesting that these leases are equally attractive to risk-adverse investors and thus that the same risky discount rate can be used in valuing the leases. The analysis is carried out in a risk-neutral framework, and sensitivity of the results to interest rate uncertainty, real sales volatility and growth, and the required risk premium on retail real estate is shown. The appropriate risky discount rate for the overage lease is calculated to be 75 to 160 basis points greater than that for the renewal lease.

House price dynamics and their reaction to macroeconomic changes

This article applies a three-regime Markov switching model to investigate the impact of the macroeconomy on the dynamics of the residential real estate market in the US. Focusing on the period between 1960 and 2011, the methodology implemented allows for a clearer understanding of the drivers of the real estate market in “boom”, “steady-state” and “crash” regimes. Our results show that the sensitivity of the real estate market to economic changes is regime-dependent. The paper then proceeds to examine whether policymakers are able to influence a regime switch away from the crash regime. We find that a decrease in interest rate spreads could be an effective catalyst to precipitate such a change of state

A re-examination of the index effect: Gambling on additions to and deletions from the S&P 500's [`]gold seal'

This study examines the abnormal returns, trading activity, volatility and long-term performance of stocks that were added to the S&P 500 index. By using a three-factor pricing model that allows for firm size and value characteristics as well as market risk, we are able to shed new light on the widely observed [`]index effect'. We find that the CAPM tends to overstate the performance of large firms and to understate the performance of small firms. We also find a transitory increase in trading volume between the announcement and a few days after the effective date. In terms of the firm's operating performance, we find a significant increase in earnings per share after inclusion, which combines with the stock price rise to leave the average price-earnings ratio largely unaltered. Examining a unique sample of deletions of international companies and replacements with US companies, we find that deleted stocks experienced a considerable and permanent fall in price, inconsistent with the Investor Recognition Hypothesis. The "seal" of S&P 500 index membership has very long-term effects and inclusion appears not to be an information-free event.

Origin and Formation of Planetary Systems

International audienceTo estimate the occurrence of terrestrial exoplanets and maximize the chance of finding them, it is crucial to understand the formation of planetary systems in general and that of terrestrial planets in particular. We show that a reliable formation theory should not only explain the formation of the Solar System, with small terrestrial planets within a few AU and gas giants farther out, but also the newly discovered exoplanetary systems with close-in giant planets. Regarding the presently known exoplanets, we stress that our current knowledge is strongly biased by the sensitivity limits of current detection techniques (mainly the radial velocity method). With time and improved detection methods, the diversity of planets and orbits in exoplanetary systems will definitely increase and help to constrain the formation theory further. In this work, we review the latest state of planetary formation in relation to the origin and evolution of habitable terrestrial planets