The application of financial theory to the pricing of upward-only rent reviews

Booth, Philip; Walsh, Duncan

doi:10.1080/09599910010014147

Cited by 9 publications

(13 citation statements)

References 6 publications

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“…In one DCF method the rental stream at the current level of rent is valued as if it were known with certainty, and the expected extra amount from any review valued separately. Booth & Walsh (1998) describe this as the 'risk-free plus extra' method. The passing rent is in a sense 'risk free', although it is still subject to the risk of tenant default.…”

Section: Ae the Option Nature Of Upward-only Rent Reviewsmentioning

confidence: 99%

“…2.12 We can obtain precise valuation formulae with certain simplified distributions for S(t). These were derived originally in Booth & Walsh (1998). For example, if we choose a lognormal distribution for S(t) with:…”

Section: Ae the Option Nature Of Upward-only Rent Reviewsmentioning

confidence: 99%

“…Similar formulae can be derived for other distributions and then evaluated using numerical methods. The method is compatible with the approach to option pricing of Pemberton (1997), and is applied in Booth & Walsh (2001a) and Booth & Walsh (2001b). An appropriate risk discount rate j has to be chosen.…”

Section: Ae the Option Nature Of Upward-only Rent Reviewsmentioning

confidence: 99%

“…1.5 More recently, attention has turned to the valuation of lease options (see, for example, Grenadier, 1995b;Crosby et al, 1997;Ambrose et al, 1999;Booth & Walsh, 2001a;2001b), but as yet this has had little impact on practice. Nonetheless, an approach to valuation which values the option explicitly offers an important new approach to property valuation practice and provides an opportunity for significant inputs from other professions and disciplines, such as actuaries and financial economists.…”

mentioning

confidence: 99%

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Lease Terms, Option Pricing and the Financial Characteristics of Property

Adams

Booth²,

Macgregor³

2003

Br. Actuar. J.

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Traditional and standard discounted cash flow valuation techniques are unable to deal with a variety of options contained in lease contracts. In the United Kingdom the most important embedded option is the upward-only rent review. This becomes more valuable to the landlord in an era of low demand and low inflation, as nominal market rents are more likely to fall. Lease contracts are freely negotiated between landlord and tenant, and alternative forms of rent review clause would fundamentally change the investment characteristics of property. Many other less common options also exist in lease contracts and these create further valuation difficulties. It is essential that property valuation techniques be developed that explicitly value the options in lease contracts.

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Section: Ae the Option Nature Of Upward-only Rent Reviewsmentioning

confidence: 99%

Section: Ae the Option Nature Of Upward-only Rent Reviewsmentioning

confidence: 99%

Section: Ae the Option Nature Of Upward-only Rent Reviewsmentioning

confidence: 99%

mentioning

confidence: 99%

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Lease Terms, Option Pricing and the Financial Characteristics of Property

Adams

Booth²,

Macgregor³

2003

Br. Actuar. J.

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“…Besides the NNEG, there are other options that are related to real estate performance. For example, Booth and Walsh (2001a, b) consider the upward only rent review option embedded in property lease contracts. In an upward only rent review lease structure, at each review, the rent can be set at the higher of the rent receivable before the review and the level of market rents at the review.…”

Section: Introductionmentioning

confidence: 99%

On Pricing and Hedging the No-Negative-Equity Guarantee in Equity Release Mechanisms

Li¹,

Hardy²,

Tan³

2009

Journal of Risk and Insurance

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In a roll-up mortgage, the borrower receives a loan in the form of a lump sum. The loan is rolled up with interest until the borrower dies, sells the house, or moves into long-term care permanently. The house is sold at that time, and the proceeds are used to repay the loan and interest. Most roll-up mortgages are sold with a no-negative-equity guarantee (NNEG), which caps the redemption amount at the lesser of the face amount of the loan and the sale proceeds. The core of this study is to develop a framework for pricing and managing the risks of the NNEG. Copyright (c) The Journal of Risk and Insurance, 2009.

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