Redevelopment Option Value for Commercial Real Estate

Büchler, Simon; van de Minne, Alex; Schöni, Olivier (April 2020). Redevelopment Option Value for Commercial Real Estate (CRED Working Paper 26). Bern: CRED - Center for Regional Economic Development

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We analyze the impact of the redevelopment potential on commercial real estate transaction prices. First, using a probit model, we compute the fitted redevelopment potential. This potential is primarily determined by the difference in net operating income (NOI) per square foot of land (sql) to the potential highest and best use (HBU) of the property. This difference reflects the economic obsolescence of a property. Second, we run a 2SLS model with the fitted redevelopment potential as an instrument for the redevelopment dummy. We find that having a 100 percent redevelopment potential increases the property's price by nine to 17 percent.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics
03 Faculty of Business, Economics and Social Sciences > Department of Economics > Institute of Economics > Economic Policy and Regional Economics
03 Faculty of Business, Economics and Social Sciences > Department of Economics > Institute of Economics
03 Faculty of Business, Economics and Social Sciences > Department of Economics > Institute of Economics > Public Economics
11 Centers of Competence > Center for Regional Economic Development (CRED)

UniBE Contributor:

Büchler, Simon Camilo and Schöni, Olivier

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

CRED Working Paper

Publisher:

CRED - Center for Regional Economic Development

Language:

English

Submitter:

Melanie Moser

Date Deposited:

29 Jun 2020 08:40

Last Modified:

13 Mar 2021 18:46

Uncontrolled Keywords:

Probability of redevelopment, Real Estate Pricing, Competing Risk

JEL Classification:

R32, C01

BORIS DOI:

10.7892/boris.143537

URI:

https://boris.unibe.ch/id/eprint/143537

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