THE PRICING OF COMMERCIAL REAL ESTATE SHOULD INCLUDE CASH FLOWS RECEIVED FROM RENT PAYMENTS WITH POTENTIAL REDEVELOPMENT VALUE WHEN THE LEASE EXPIRES

6. A is correct. The pricing of commercial real estate should include cash flows received from

rent payments with potential redevelopment value when the lease expires. The discount rate

for these cash flows should incorporate a risk premium for commercial real estate which is

closer to equity investments than fixed-income investments, a liquidity risk premium to

account for the illiquidity of a commercial real estate investment, a credit risk premium, a

real government bond yield plus a nominal government bond yield. Section 7.2. LO.m.