Economic Fundamentals, Capital Expenditures and Asset Dispositions

Brent Ambrose and Eva Steiner ()
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Eva Steiner: College of Business

The Journal of Real Estate Finance and Economics, 2022, vol. 64, issue 3, No 3, 378 pages

Abstract: Abstract The real estate literature recognizes the real option to invest in capital expenditures (CAPEX) or sell a property but treats these options as independent. We show that these real options are interconnected. We provide empirical evidence that, consistent with the real option framework, CAPEX increases in income growth expectations but declines in their volatility; that CAPEX are partially capitalized into property market values; and that CAPEX significantly reduce the subsequent likelihood of sale. We also present evidence that, controlling for market timing, past property performance influences CAPEX but not disposition choices, consistent with a value-add investment strategy.

Keywords: Real estate investment; Real options; Disposition choices (search for similar items in EconPapers)
JEL-codes: D9 G40 R33 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11146-019-09698-9

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