An Equilibrium Analysis of Real Estate

41 Pages Posted: 2 Feb 2003 Last revised: 21 Jun 2009

Date Written: February 2003


This paper provides a unified equilibrium approach to valuing a wide variety of commercial real estate lease contracts. Using a game-theoretic variant of real options analysis, the underlying real estate asset market is modeled as a continuous-time Nash equilibrium in which developers make construction decisions under demand uncertainty. Then, using the economic notion that leasing simply represents the purchase of the use of the asset over a specified time frame, I use a contingent-claims approach to value many of the most common real estate leasing arrangements. In particular, the model provides closed-form solutions for the equilibrium valuation of leases with options to purchase, pre-leasing, gross and net leases, leases with cancellation options, ground leases, escalation clauses, lease concessions and sale-leasebacks.

Suggested Citation

Grenadier, Steven R., An Equilibrium Analysis of Real Estate (February 2003). NBER Working Paper No. w9475, Available at SSRN:

Steven R. Grenadier (Contact Author)

Stanford Graduate School of Business ( email )

Graduate School of Business
Stanford, CA 94305-5015
United States
650-725-0706 (Phone)
650-725-6152 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics