Contracting and Optimal Rents in Commercial Real Estate Leasing

Abstract

The problem of determining optimal rents in commercial real estate leases (as credit contracts, investments and as part of the supply chain) affects many companies in various industries such as retailing, healthcare, manufacturing, leasing, etc.. The advent of companies such as WeWork, LiquidSpace, ShareDesk; Convene, Impact Hub; Knotel, IWG; etc, complicates issues. This article: a) introduces new models of optimal rents in commercial real estate leasing, b) introduces new models of “contract incompleteness” in commercial real estate leases, and explains the influence of “contract incompleteness” in real estate leases on the determination of optimal rents, c) identifies various transaction costs, agency problems, Behavioral Operation Research issues and risk management costs that are inherent in commercial real estate leasing processes and in contracts. The concepts and models developed in the article can also be applied to equipment leasing and other types of leasing.

Keywords: Commercial Real Estate; Portfolio Management; Complex Systems; Dynamical Systems; Contract Theory; Supply Chain; Sharing Economy; Leasing.