Evaluating the Decision to Own Corporate Real Estate

The traditional decision analysis currently used by most corporations to decide whether to own or lease their operating real estate is fundamentally flawed, resulting in much more corporate-owned commercial property than is economically justified. Most firms currently lease space if the present value of future rent is less than the present value of the cost of self-ownership, net of depreciation benefits and expected property appreciation. However, the correct model for the own-versus-lease decision must compare the present value of profits the corporation expects if they lease, with the present value of expected profits if they decide to own real estate.