TY - JOUR
T1 - Optimal Capital Structure in Real Estate Investment
T2 - A Real Options Approach
AU - Jou, Jyh Bang
AU - Lee, Tan
N1 - Publisher Copyright:
© 2011, Global Social Science Institute. All rights reserved.
PY - 2011/3/1
Y1 - 2011/3/1
N2 - This article employs a real options approach to investigate the determinants of an optimal capital structure in real estate investment. An investor has the option to delay the purchase of an income-producing property because the investor incurs sunk transaction costs and receives stochastic rental income. At the date of purchase, the investor also chooses a loan-to-value ratio, which balances the tax shield benefit against the cost of debt financing resulting from a higher borrowing rate and a lower rental income. An increase in the sunk cost or the risk of investment will not affect the financing decision, but will delay investment. An increase in the income tax rate or a decrease in the depreciation allowance will encourage borrowing and delay investment, while an increase in the penalty from borrowing, a decrease in the investor’s required rate of return, or worse real estate performance through borrowing, will discourage borrowing and delay investment.
AB - This article employs a real options approach to investigate the determinants of an optimal capital structure in real estate investment. An investor has the option to delay the purchase of an income-producing property because the investor incurs sunk transaction costs and receives stochastic rental income. At the date of purchase, the investor also chooses a loan-to-value ratio, which balances the tax shield benefit against the cost of debt financing resulting from a higher borrowing rate and a lower rental income. An increase in the sunk cost or the risk of investment will not affect the financing decision, but will delay investment. An increase in the income tax rate or a decrease in the depreciation allowance will encourage borrowing and delay investment, while an increase in the penalty from borrowing, a decrease in the investor’s required rate of return, or worse real estate performance through borrowing, will discourage borrowing and delay investment.
KW - Optimal Capital Structure
KW - Real Estate Investment
KW - Real Options
KW - Transaction Costs
UR - http://www.scopus.com/inward/record.url?scp=85065906359&partnerID=8YFLogxK
M3 - 期刊論文
AN - SCOPUS:85065906359
SN - 2154-8919
VL - 14
JO - International Real Estate Review
JF - International Real Estate Review
IS - 1
ER -