Office Building Capitalization Rates: The Case of Downtown Chicago

Office Building Capitalization Rates: The Case of Downtown Chicago This paper is an empirical study of the capitalization rates for 132 office building sales in downtown Chicago from 1996 to 2007. The capitalization rate is hypothesized to be a function of the classic capital asset pricing model variable and variables intended to capture the expectation that the real market value of the building will change. The results show that the capitalization rate for office buildings incorporates a very low value for “beta.” A lower capitalization rate was associated with a smaller risk-free rate, a lower borrowing rate, class A buildings, newer buildings, buildings that had been renovated, a reduction in the vacancy rate in the downtown Chicago office market, and an increase in employment in the financial sector of the metropolitan area. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Office Building Capitalization Rates: The Case of Downtown Chicago

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Publisher
Springer Journals
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-008-9116-4
Publisher site
See Article on Publisher Site

Abstract

This paper is an empirical study of the capitalization rates for 132 office building sales in downtown Chicago from 1996 to 2007. The capitalization rate is hypothesized to be a function of the classic capital asset pricing model variable and variables intended to capture the expectation that the real market value of the building will change. The results show that the capitalization rate for office buildings incorporates a very low value for “beta.” A lower capitalization rate was associated with a smaller risk-free rate, a lower borrowing rate, class A buildings, newer buildings, buildings that had been renovated, a reduction in the vacancy rate in the downtown Chicago office market, and an increase in employment in the financial sector of the metropolitan area.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Mar 26, 2008

References

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