European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No DR 07008: Optimal Holding Period for a Real Estate Portfolio

Michel Baroni (), Fabrice Barthélémy () and Mahdi Mokrane ()
Additional contact information
Michel Baroni: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY-PONTOISE Cedex , FRANCE,
Fabrice Barthélémy: THEMA, University of Cergy-Pontoise, Postal: 33, Bd du Port, 95011 CERGY-PONTOISE Cedex , FRANCE
Mahdi Mokrane: IXIS-AEW Europe, Postal: 12/20 rue Fernand Braudel, 75013 PARIS, FRANCE

Abstract: This paper considers the use of simulated cash flows to determine the optimal holding period of a real estate portfolio to maximize its present value. The traditional DCF approach with an estimation of the resale value through a growth rate of the future cash flow does not let appear this optimum. However, if the terminal value is calculated from the trend of a diffusion process of the price, an optimum may appear under certain conditions. Finally we consider the sensitivity of the present value to the different parameters involved in the cash flow estimations.

Keywords: Cash Flows Simulations; Holding Period; Real Estate Portfolio Management

JEL-codes: C15; G11

25 pages, April 2007

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