Business Enterprise Value in Shopping Malls: An Empirical Test

This paper discusses the economic basis for the existence of business enterprise value in a shopping mall. The existence of business enterprise value in a mall is then tested by examining the rent paid by existing tenants on a lease renewal vs. that paid by new tenants for otherwise identical space. The hypothesis that there is no difference in rents between renewals and new tenants can be rejected. This suggests that with each lease renewal there is a marginal increase in business enterprise value component of the rents. Proposed federal regulations for the appraisal of federally related transactions, the uniform standards of professional appraisal practice, and real property tax law call for separation of the value of intangibles (which include business value) from tangible personal property and from real property. Thus the business value portion of the mall rental should not be capitalized into the value of the real estate. Because income from lease renewals included business value, the leases must be adjusted before they can be used as an indication of market rent.