Long-term land leaseholds are contracts that contain within them a redevelopment option. The structure of the contract influences the incentive to redevelop. We employ real option pricing techniques to evaluate the timing and intensity of the redevelopment decision by lessees in alternative...

Since the option to redevelop a property is valuable, ground leased property should trade at adiscount relative to fee simple property because of the impairment of the value of that optionresulting from the foreshortened horizon of the leaseholder. This discount would be over andabove the...