Debt financing and real estate investment timing decisions

Giovanni Marseguerra and Flavia Cortelezzi

Journal of Property Research, 2009, vol. 26, issue 3, 193-212

Abstract: The paper analyses the interaction between investment and financing decisions in a real option framework. In our model, the owner of an undeveloped real estate property (the asset in place) has the option to decide whether and when to develop/abandon his property. We show that debt financing induces the firm to invest earlier than in the pure equity financing case. Moreover, the incentive to anticipate the investment decisions increases with the amount of debt.

Date: 2009
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DOI: 10.1080/09599911003669625

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