Anticipated Growth and the Specification of Debt in Real Estate Value Models

Standard value models for investment real property do not distinguish between current income and future growth in estimating the probable level of debt financing. Analysis of loan commitment data from 1971-1981 suggests that this was not a proper assumption during that period. Consistent with recent models from the literature of the firm, the portion of the value of investment properties attributable to anticipated growth apparently supported less dept than did current income. Copyright American Real Estate and Urban Economics Association.