《《The Q theory of investment》.pdf

Applied Financial Economics, 2010, 20, 1133–1143 The Q theory of investment, the capital asset pricing model and the capitalization rate in real estate valuationy John F. McDonald Walter E. Heller College of Business Administration, Roosevelt University, Chicago, IL 60605, USA E-mail: jmcdonald@ This article combines Tobin’s Q theory of real investment with the Capital Asset Pricing Model (CAPM) to produce a model of the capitalization rate used in the valuation of real estate assets using the income approach. An empirical study of capitalization rates for office buildings in downtown Chicago is included. I. Introduction study of real estate investment would appear to be a good match of theory and application. There are The purpose of this article is to combine the received separate real estate development firms that specialize economic theory of real investment and the standard in the task of planning, building and selling real estate financial model of asset pricing to generate a method to permanent owners. Their basic calculation is for the valuation of real assets. This article is a work whether Q is greater than 1.0. of synthesis, and intentionally uses relatively simple The theoretical sections are followed by an empir- versions of these two theories to link economics, ical study of the capitalization rates for 130 office finance and valuation. An empirical study of capital- buildings in downtown Chicago that were sold ization rates for office buildings in downtown between 1997 and 2007. Sellers of commercial real Chicago provides a test of the model. estate ordinarily provide information on NOI, so the This art