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dc.contributor.authorCorgel, Jack
dc.contributor.authorLee, Hyun Seok
dc.date.accessioned2020-09-09T16:33:29Z
dc.date.available2020-09-09T16:33:29Z
dc.date.issued2011-04-10
dc.identifier.other7351181
dc.identifier.other8676779
dc.identifier.urihttps://hdl.handle.net/1813/70889
dc.description.abstractThis paper examines assumptions about future prices used in real estate applications of DCF models. We confirm both the widespread reliance on an ad hoc rule of increasing period-zero capitalization rates by 50 to 100 basis points to obtain terminal capitalization rates and the inability of the rule to project future real estate pricing. To understand how investors form expectations about future prices, we model the spread between the contemporaneously period-zero going-in and terminal capitalization rates and the spread between terminal rates assigned in period zero and going-in rates assigned in period N. Our regression results confirm statistical relationships between the terminal and next holding period going-in capitalization rate spread and the period-zero discount rate, although other economically significant variables are statistically insignificant. Linking terminal capitalization rates by assumption to going-in capitalization rates implies investors view future real estate pricing with myopic expectations. We discuss alternative specifications devoid of such linkage that align more with a rational expectations view of future real estate pricing.
dc.language.isoen_US
dc.rightsRequired Publisher Statement: © Cornell University. This report may not be reproduced or distributed without the express permission of the publisher.
dc.subjectCornell
dc.subjectDCF Models
dc.subjectreal estate valuation
dc.subjectcapitalization rates
dc.titleLiving with Terminal Capitalization Rates: A Look at Real Estate Valuation Model Parameter Setting
dc.typearticle
dc.description.legacydownloads2011_Corgel_Living_with_terminal_cap.pdf: 1566 downloads, before Aug. 1, 2020.
local.authorAffiliationCorgel, Jack: jc81@cornell.edu Cornell University
local.authorAffiliationLee, Hyun Seok: Konkuk University


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