This study examines the effect of the sale and leaseback of corporate real estate on the stock prices of the selling firms. We ask whether the Tax Reform Act of 1986 (TRA 1986) had a negative impact on the market valuation effects of corporate sale and leasebacks. The results of the comparative statics analysis predict that the net present value of the lessee should be negatively related to the tax depreciation recovery life for the lessor and to the marginal ordinary income tax rate of the marginal holder of commercial mortgage debt. However, it should be positively related to the marginal tax rate of the equityholder of the corporate lessee. Changes in the marginal ordinary income tax rates of the lessor and the corporate lessee have an ambiguous effect on the equity value of the corporate lessee. Nevertheless, results of simulation analyses suggest that the relationship between the net present value of the lessee and each of the tax rates of the lessor and corporate lessee is negative. The empirical evidence suggests that subsequent to TRA 1986, the lessee's benefits associated with sale and leaseback transactions have decreased. Copyright American Real Estate and Urban Economics Association.
A participating mortgage is a loan in which a lender accepts a below-market coupon rate in return for a share (participation) in the cash flows generated by income-producing real property. The cash flows provided by participation are classified as contingent interest and are intended to compensate the lender for additional risk exposure as well as the reduction in coupon rate. In this paper, we present a partial equilibrium wealth-maximizing model to estimate the extent of lender participation and an analysis of the factors affecting it. The results of formal comparative statics analysis show that the lender's percentage participation is, in general, positively related to changes in the loan-to-value ratio and threshold cash flows above which participation is payable. Among yet other results, a change in the contracted loan life has an ambiguous effect on the lender's percentage participation. Then, in an effort to resolve ambiguities in the comparative statics results, we employ a numerical procedure in conducting sensitivity analyses. This allows us to estimate percentage participation levels, and their elasticities, under various assumptions regarding the underlying factors. Copyright Springer Science + Business Media, Inc. 2005participation, wealth-maximizing, partial equilibrium, elasticity, contingent interest, comparative statics, numerical procedure,
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