Evaluating Real Estate Development Using Real Options Analysis

2009 ◽  
Author(s):  
Graeme Guthrie
Keyword(s):  
Real Estate ◽  
Real Options ◽  
Real Estate Development ◽  
Real Options Analysis

Estimation of Risk-Return for Real Estate Investments by Applying Ellwood’s Model and Real Options Analysis: An Application to the Residential Real Estate Market of Naples

2014 ◽  
Vol 651-653 ◽  
pp. 1570-1575 ◽  
Author(s):  
Vincenzo del Giudice ◽  
Alfredo Passeri ◽  
Pierfrancesco de Paola ◽  
Francesca Torrieri
Keyword(s):  
Real Estate ◽  
Real Options ◽  
Financial Analysis ◽  
Real Estate Market ◽  
Residential Real Estate ◽  
Real Options Analysis ◽  
Risk Return ◽  
Real Estate Investments ◽  
Capitalization Rate ◽  
Financial Income

In the present study was developed an application of a model derived from Ellwood’s financial analysis and Real Options Analysis for estimating the risk-return in the residential real estate market of Naples. With the aim of reducing the uncertainty related to the determination of the risk and return for an property investment, starting of real estate investment layout derived from the Ellwood’s model, latter defined by financial income and costs related to the period of property availability, a risk analysis with Real Options Analysis has been implemented, in order to obtain the evolution of the investment value until the year in which it is convenient to recover the initial capital. This model has allowed to determine a capitalization rate for a general area of reference, that it can adapt on further effects of specific factors and intrinsic characteristics of the property being valued. It also allows to define uniquely the investment duration, in terms of availability period of property.

scholarly journals International Real Estate Review

2021 ◽  
Vol 24 (1) ◽  
pp. 1-17
Author(s):  
Yongqiang Chu ◽  
◽  
Tien Sing ◽  
Keyword(s):  
Real Estate ◽  
Real Options ◽  
Demand Uncertainty ◽  
Market Volatility ◽  
Real Estate Development ◽  
Demand Shock ◽  
Inverse Effect ◽  
Option Values ◽  
Empirical Tests ◽  
The Cost

Developers make decisions around timing and intensity simultaneously when exercising a development option. Built on the early real options models, we allow the demand shock and the cost functions to be dependent on the intensity of real estate development. Based on a set of input parameters, the numerical results show that demand uncertainty delays development activities, and the rental elasticity to density change has an inverse effect on the deferment option values. In a market where the intensity impact on rental income is small, development activities are likely to be curtailed when market volatility increases. More empirical tests could be conducted on whether more smaller-scale projects are triggered in down markets relative to up markets.

scholarly journals Real Options for Risk Analysis in Estimating the Capitalization Rate

2021 ◽  
Vol 15 ◽  
pp. 88-93
Author(s):  
Pierluigi Morano ◽  
Benedetto Manganelli ◽  
Francesco Tajani
Keyword(s):  
Risk Analysis ◽  
Real Estate ◽  
Real Options ◽  
Formal Logic ◽  
Real Options Analysis ◽  
The Real ◽  
Cap Rate ◽  
Capitalization Rate ◽  
Analogical Process

A suitable cap-rate is generally determined through an analogical process in order to estimate the value of any real estate through the capitalization of the incomes. The analogy relates to the risk and duration of similar investments. There are numerous methods to rationalize the valuation of the cap-rate. Appraisals have a certain degree of uncertainty in all these methods. This paper proposes a methodology which removes any uncertainty when evaluating the cap-rate. This is achieved through the combination of the formal logic of the Ellwood’s model and the Real Options Analysis.

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