Economic Fundamentals, Capital Expenditures and Asset Dispositions

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
JournalJournal of Real Estate Finance and Economics
DOIs
StatePublished - Jan 1 2019

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disposition
expenditure
assets
expenditures
economics
property market
market
real estate
sale
evidence
Values
Capital expenditures
Assets
Economic fundamentals
Disposition
income
present
performance
Real options

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies

Cite this

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title = "Economic Fundamentals, Capital Expenditures and Asset Dispositions",
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.",
author = "Ambrose, {Brent William} and Eva Steiner",
year = "2019",
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day = "1",
doi = "10.1007/s11146-019-09698-9",
language = "English (US)",
journal = "Journal of Real Estate Finance and Economics",
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