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Abstract
The traditional 2-market models, which distinguish space markets from capital markets, impose serious restrictions on the linkages among real estate markets and capital markets. The 2-market models also ignore how capitalization rates are determined. It is helpful to disentangle the capital market of the standard analysis into a property market and a general capital market. This partition allows for the consideration of the importance of and linkages among 3 markets - space, property, and general capital markets - instead of the standard 2. It also permits the introduction of property-specific multiperiod discount rates and their capital market and space market determinants. Given competitively determined rents in the space market, property values become the adjusting factor to provide potential investors with an expected holding period return equal to their risk-adjusted discount rate. Thus, property values and capitalization rates are determined endogenously in property markets.