Tenant Riskiness, Contract Length, and the Term Structure of Commercial Leases
CESifo, Munich, 2022
CESifo Working Paper No. 10189
![](https://cesifo.org/DocImg/cesifo1_wp10189.jpg?c=1689236995)
This paper explores the connection between tenant riskiness, commercial lease length and the term structure of lease contracts. Theory shows that the possibility of default on a long-term lease generates a risk/lease-length connection. The empirical work uses a large CompStak lease dataset combined with tenant characteristics (including risk) from Dun & Bradstreet. Regressions show that lease length is inversely related to the D&B risk measures, as predicted, and that risky tenants pay a higher rent premium for long-term contracts than low-risk tenants. The presence of such tenants thus raises the slope of the term structure of commercial rents.
Industrial Organisation