Francois Rabelais. jrabelais@rabelaispartners.com
One of many reasons that tenanted property is a bad inflation hedge is that multi-tenanted property is a hybrid asset that includes bond-like components, called leases, and equity, which behaves like a call option. The value of an option increases with volatility. In addition, leases and other components contain real options, the value of which responds to market volatility, often in complex ways. Depending on the kind of inflation—cost push or demand pull—the value of the leases and the options may not move in the same direction. They can be mutually offsetting or reinforcing.
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