scholarly journals Real option analysis. The viability of real estate projects

2020 ◽  
Vol 17 (4) ◽  
pp. 271-284
Author(s):  
Alberto Munoz Cabanes ◽  
Alfonso Herrero de Egana ◽  
Arturo Romero
Keyword(s):  
Real Estate ◽  
Real Option ◽  
Net Present Value ◽  
Initial Conditions ◽  
Present Value ◽  
The Real ◽  
The Real Estate ◽  
Real Option Analysis ◽  
Project Valuation ◽  
Real Estate Project

Traditional methods used for real estate project valuation, such as the static Net Present Value, have some limitations, as these methods do not consider the possibility of a change in the initial conditions of the project or during its development. On the other hand, the real options approach allows for flexibility in evaluating a real estate project, improving the decision-making process as it helps identify the optimal strategy and timing for the construction phases. The paper deals with evaluating an actual real estate project in La Rioja (Spain) using different options to estimate its final Net Present Value. The results show that the real estate project would be profitable under several scenarios, although the valuations can vary significantly among the different types of options. This is because some options add more value to the project than others, depending on their cost and the uncertainty they eliminate. In contrast, the results obtained using the traditional static method would have led a real estate developer to discard the project completely, as its Net Present Value would have been negative. This confirms that the introduction of flexibility in real estate developments creates additional value by allowing developers and investors to dynamically react to changes in the market, thus making better investment decisions and finding real estate investment opportunities that otherwise would not be considered at all.

scholarly journals Sustainable Value of Investment in Real Estate: Real Options Approach

2018 ◽  
Vol 10 (12) ◽  
pp. 4665 ◽  
Author(s):  
Marek Durica ◽  
Danuse Guttenova ◽  
Ludovit Pinda ◽  
Lucia Svabova
Keyword(s):  
Real Estate ◽  
Real Option ◽  
Investment Project ◽  
Real Estate Market ◽  
Capital City ◽  
Present Value ◽  
The Real ◽  
The Real Estate ◽  
Specific Investment ◽  
The Real Estate Market

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 rate, value of the most influential parameter of the volatility and the input option parameters. The results of the valuation of the project obtained using the real option approach are important mainly for the management of the company in the process of quantification of the present value of future investments. Implementation of managerial interventions enables for optimizing the value of the project not only in case of favourable development of the real estate market, but particularly in case of unfavourable development. Therefore, they are important in order to protect an investor from potential high losses. Finally, the valuation of these interventions increases the present value of the project, contributing to the decision of the corporate management regarding its implementation.

Real Option Methodology for the Evaluation of IT Projects

2007 ◽  
Vol 8 (1) ◽  
pp. 71-88
Author(s):  
Efthymios Papadopoulos ◽  
Georgios Dounias
Keyword(s):  
Real Option ◽  
Net Present Value ◽  
New Technology ◽  
Full Range ◽  
Present Value ◽  
It Projects ◽  
Innovative Strategy ◽  
Technology Deployment ◽  
Project Valuation ◽  
Project Risks

Current project valuation framework under the Net Present Value (NPV) method has been proved to be incomplete, as it fails to accurately account for uncertainty. Traditional financial tools fail because they neglect to account for the value of flexibility. The standard NPV approach assumes that project risks remain constant over the life of the strategy. It, also, fails to factor in the full range of opportunities that a new and innovative strategy may create for a firm in the future. We show how one can use Real Option methodology in order to determine optimal financial path to fund new technology deployment within a risky environment. Moreover, in this paper we demonstrate, with the use of a simple numerical example, how the Real Options methodology can be implemented within an IT project deployment.

On the Real Estate Project Cost Management

2011 ◽  
Vol 368-373 ◽  
pp. 1323-1326 ◽  
Author(s):  
Shu Ru Liu ◽  
Min Juan Li
Keyword(s):  
Sustainable Development ◽  
Real Estate ◽  
Cost Management ◽  
Real Estate Industry ◽  
Project Cost ◽  
The Real ◽  
The Real Estate ◽  
Real Estate Project ◽  
Important Means ◽  
Capital Intensive

Real estate Industry is capital-intensive. Cost management is very important for real estate. Efficient cost management is one of important means that can ensure sustainable development of the real estate business. Now, we must find out the efficient cost management means according to analysis the importance of the real estate and the problem exist in it.

scholarly journals Perspective of Developer, Buyer, Financier and Equity Participants in Real Estate Project Development Process in India: An important constituent of Construction Industry

2017 ◽  
Vol 8 (2) ◽  
pp. 932-936
Author(s):  
Alok Singh
Keyword(s):  
Real Estate ◽  
Construction Industry ◽  
Development Process ◽  
Project Development ◽  
The Real ◽  
The Real Estate ◽  
Multiplier Effect ◽  
Real Estate Project ◽  
Real Estate Developers ◽  
Important Constituent

The real estate project development is an important constituent of construction industry. The other important constituent of construction industry is infrastructure development. The construction industry drives and impacts many other industries and has a substantial multiplier effect on various sectors and hence on economic output as well as on employment scenarios. This article discusses multiplier effect of construction industry on few of the  important economic indicators and further focuses on real estate project development process. The real estate project development process starts from land acquisition to sales and marketing. The internal stakeholders in real estate project development process are real estate developers, real estate buyers and the real estate financers. The paper discusses alternatives for real estate developers, the opportunistic schemes for real estate buyers, and the role of portfolio of financing agencies as well as the role of multitudes of equity participants. It also describes about the regulatory institutions active in real estate project development and promotion process. The real estate projects are developed by organized real estate project developer as well as by unorganized real estate project developers or local builders. This article contributes regarding the challenges and opportunities among the real estate buyers, real estate developers, portfolio of financial schemes offered by real estate financers and the opportunities for real estate equity participants.

scholarly journals A Real Options Approach to Valuate Solar Energy Investment with Public Authority Incentives: The Italian Case

Energies ◽  
2020 ◽  
Vol 13 (16) ◽  
pp. 4181
Author(s):  
Antonio Di Bari
Keyword(s):  
Solar Energy ◽  
Real Options ◽  
Real Option ◽  
Net Present Value ◽  
Option Value ◽  
Present Value ◽  
Energy Investment ◽  
The Real ◽  
Real Options Approach ◽  
Real Option Value

Solar energy investment represents currently a valid reason to support sustainable economic development. In fact, over the last few years, governments have applied different measures to incentivize private consumers and firms to use renewable energies. Photovoltaic (PV) projects are characterized by uncertainty due to meteorological conditions, the unpredictable behavior of government, and managerial flexibility. Since the Net Present Value (NPV) approach is not able to capture these uncertain factors, it was replaced with the Real Options Approach (ROA). The latter method manages to embed flexibility in PV investment using binomial trees. This paper valuates PV investment in all regional areas in Italy using an integrated approach between the discounted cash flows method and real option value, called Expanded Net Present Value (ENPV). We fit the probability of tax benefits into a binomial lattice model after analyzing the geographical position and weather conditions of all regional capitals of Italy. The results show that the cities with high irradiance/temperature have positive NPV and high investment values. On the other hand, while most cities have negative NPV, the inclusion of the flexibility in investment decisions gives additional value to the project, making the ENPV positive and implying an attractive investment opportunity with the possibility of delaying the project. We also propose a sensitivity analysis that shows how the real option value changes when incentive policies of the government become more attractive. This paper contributes to the existing literature in the way of considering financial, meteorological/geographical, and political factors to valuate PV investment.

The Analysis of Life Cycle Quality Management in Real Estate Development

2014 ◽  
Vol 644-650 ◽  
pp. 5999-6002
Author(s):  
Heng Sheng Ma ◽  
Feng Gao
Keyword(s):  
Quality Control ◽  
Life Cycle ◽  
Quality Management ◽  
Real Estate ◽  
Real Estate Development ◽  
The Real ◽  
The Real Estate ◽  
Inductive Research ◽  
Key Points ◽  
Real Estate Project

Firstly,summarizes and analyzes the theory of the life cycle,and then inductive research the current real estate project quality management status.Secondly,divide the phases of the life cycle quality in the real estate project were set off.Thirdly,stand in developer's perspective,systemically analyzes the main content of LCP in the real estate project,the key points and the methods of the quality control.

scholarly journals Optimization of Tourism Real Estate Development Project Based on Option Premium Model

2021 ◽  
Vol 2021 ◽  
pp. 1-8
Author(s):  
Donglei Ying
Keyword(s):  
Decision Making ◽  
Real Estate ◽  
Real Option ◽  
Investment Decision ◽  
Case Analysis ◽  
Distribution Model ◽  
The Real ◽  
Investment Decision Making ◽  
Real Estate Project ◽  
Option Model

Compared with that of traditional housing real estate, the development of tourism real estate is time-consuming, complex, and irreversible. It is hard to guide investment decision-making on tourism real estate with the conventional discount cash flow (DCF) method. This paper aims to demonstrate that the real option method can improve and optimize the investment decision-making on tourism real estate. Through case analysis, the real option model, i.e., the classic American real option model, and binary tree value distribution model were adopted to analyze the factors affecting the real option of tourism real estate, optimize the development sequence of tourism real estate project, and demonstrate the phased development value of tourism real state, thereby enhancing the development value of tourism real estate projects. The case analysis proves that tourism real estate investment is fully consistent with real option in the uncertain spatiotemporal attributes: uncertainty, irreversibility, and timeliness. Therefore, tourism real estate project carries obvious features of real option. The decision-making by the real option model is much more scientific and superior than that by the conventional DCF method. Since the application of real option theory has been emphasizing housing real estate over tourism real estate, the research results enrich the theory on real option-based investment decision-making for real estate and expand the application scope of real option.

Research on Selecting Real Estate Project Based on PCA and RBF Neural Network

2011 ◽  
Vol 225-226 ◽  
pp. 162-165
Author(s):  
Hui Zhao ◽  
Li Ming Chen
Keyword(s):  
Neural Network ◽  
Principal Component Analysis ◽  
Real Estate ◽  
Rbf Neural Network ◽  
Principal Component ◽  
Component Analysis ◽  
Basic Function ◽  
The Real ◽  
The Real Estate ◽  
Real Estate Project

A new method based on the integration of principal component analysis (PCA) and radial basic function (RBF) neural network is put forward for selecting the real estate project. Firstly, principal component analysis (PCA) is used to reduce the evaluation index dimensions. And then, radial basic function (RBF) neural network is used to evaluate the real estate projects. In order to grasp this method better, finally, the paper provides a case to demonstrate the application of this method in selecting the real estate project. The case has shown that the method applied to select the real estate project is feasible and reliable.

scholarly journals Opcje realne jako alternatywa w wycenie projektów inwestycyjnych

2017 ◽  
Vol 5 (2) ◽  
pp. 53-63
Author(s):  
Michał Gnap
Keyword(s):  
Real Options ◽  
Real Option ◽  
Net Present Value ◽  
Rate Of Return ◽  
Option Value ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Standard Analysis ◽  
The Real ◽  
Real Option Value

The most important function of every company is to create value for its owners. In this concept, it is necessary to make actions both operating and investing. They are targeted to increase economical value in the future. Very popular in this age net present value and internal rate of return, even though very popular, they face absolute tool. Every limitation which is typical for those methods, lead to situations where management must take decisions intuitively. So standard analysis NPV should be expanded by additional tools like the real option. The aim of this work is not to characterize approaches used for estimation of real option value, but to show how seemingly unprofitable investments can be profitable due to feature real options which can bring to company over-proportional profit.

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