A Real Option Analysis of the “Flats for Land” System - an Idiosyncratic Equity Financing Mechanism on Real Estate Investments (original) (raw)

Real option analysis. The viability of real estate projects

Investment management & financial innovations, 2020

ARTICLE INFO Alberto Munoz Cabanes, Alfonso Herrero de Egana and Arturo Romero (2020). Real option analysis. The viability of real estate projects. Investment Management and Financial Innovations, 17(4), 271-284. doi:10.21511/imfi.17(4).2020.24 DOI http://dx.doi.org/10.21511/imfi.17(4).2020.24 RELEASED ON Tuesday, 08 December 2020 RECEIVED ON Monday, 02 November 2020 ACCEPTED ON Monday, 30 November 2020

A streamlined real options model for real estate development

2007

This thesis introduces a streamlined model that incorporates the value of the real options that exist in real estate development projects. 1 Real options add value to a project by providing developers with flexibility to minimize downside risk or take advantage of upside potential as conditions change from deterministic expectations. Though developers currently incorporate this value into their decision making using intuition and judgment, the model presented here provides a tool with which developers can value options in a rigorous and quantitative fashion. Though the model should not be used as a comprehensive land residual model, it serves as a powerful proof of concept for real options analysis in the field of real estate. Further, it can be used to measure the relative value and risk of projects with and without real options.

Sustainable Value of Investment in Real Estate: Real Options Approach

Sustainability

The issue of application of real option valuation approach in the valuation of investment project is presented in the article in a way in which the flexibility of the project could be included in the process of its valuation. The authors apply the valuation approach in case of a specific investment project in the real estate in the capital city of the Czech Republic—Prague, using the option to expand, to contract, and to abandon the project. The main aim of this case study is to present a practical application of the investment valuation and to construct an option pricing model for real estate investment which considers and integrates as many aspects of the investment and market environment as possible to describe the best situation of the real estate market and its development. The valuation of the investment is carried out using a universally applicable numerical method of binomial trees. The results obtained are subjected to the sensitivity analysis with respect to the discount r...

Real Options Valuation: An Application to the Portuguese Real Estate Market

SSRN Electronic Journal, 2000

The contribution of real options analysis on the valuation of Portuguese undeveloped building sites is significant on the decision making regarding the apartment-buildings construction. Using the options model developed by Quigg (1993), and including the necessary readjustments for the Portuguese market, it was found that the scale price elasticity parameter and construction expenditures' elasticity of scale parameter had a strong impact on building sites' values. The empirical analysis revealed that the option to defer adds value to undeveloped building sites' valuations. This fact cannot be ignored when deciding upon an investment's implementation.