Taking Real Options Beyond the Black Box

Finance theorists have long argued that DCF undervalues investment opportunities with significant flexibility to respond to future events and that real options valuation methods provide a solution to that problem. But for most corporate managers, real options analysis continues to be a "black box" when applied to real investment decisions.
This paper begins by considering why these approaches have not yet made it to the mainstream of practical application. It then shows how a traditional DCF approach can undervalue a project that provides management with operating flexibility and illustrates a case study that demonstrates to senior management how a real options valuation method with a few clear value drivers can build upon and be made consistent with the traditional DCF framework.
Critical to this process is ensuring consistency with the company's planning assumptions such as future price forecasts and discount rates. The article shows how to separate the static ("optionless") DCF value from the additional real options value that is shown to be a direct consequence of the assumptions about price dynamics.     

Stickiness of Rental Rates and Developers’ Option Exercise Strategies

In this study we incorporate sticky rents into a real options model to rationalize the widely documented overbuilding puzzle in real estate markets. Given the assumption that developers’ objective function is to maximize total revenue by selecting an optimal occupancy level, our model provides a better explanation of the phenomena we observed in the real world than the traditional market-clearance based real options models. We also show that developers’ exercise strategies can be affected by the size and the type of property markets. In other words, developers’ exercise strategies could differ among markets and under different conditions. Submitted to Cambridge—Maastricht 2005 Symposium.     

Domestic and International Equity REIT Joint Ventures: Structuring Corporate Options

We examine a sample of 185 Joint Ventures parented by publicly-traded Equity Real Estate Investment Trusts 1994–2001. These transactions are found to be motivated by a wide variety of corporate strategies. Shareholder returns for REIT parents are significantly positive, which is consistent with wealth effects previously reported for joint ventures formed by non-REIT real estate firms. In a subsample of joint ventures formed to structure partial dispositions of property, however, abnormal returns are significantly negative, which is consistent with the free cash flow theory of Jensen. REIT joint venture experience in Asia has been neutral for value, but may improve in the future if early ventures have created options for more efficient partnerships later.     

基于实物期权理论的企业设计创新投资时机研究

产品的设计创新已经成为企业培养和维持核心竞争优势的关键。已有文献较少基于经济管理的视角来探讨不确定条件下企业设计创新所具有的实物期权特性,且传统的 DCF 无法对管理决策柔性做出科学的评价。为此,根据实物期权理论,构建企业设计创新的投资时机模型,并利用案例证明该模型的科学性和可行性。结果表明,企业在 DCF 分析的同时,应充分考虑企业设计创新的投资期权价值,把握最佳投资时机,实现科学决策。     

Real estate return correlations: Real-world limitations on relationships inferred from NCREIF data

Correlation estimates for returns between individual properties are subject to large inherent uncertainties due to limits on the amount of data that is likely to be available for the foreseeable future. After allowance for correlation sampling error, it is impossible to distinguish on an ex ante basis between the risk-reduction capabilities of mean-variance portfolio selection models and naive diversification without regard to property type or geographical location. The naive portfolio diversification strategies of typical institutional real estate portfolio managers are rational responses to limitations on the informational content of statistical analyses of historical real estate data.     

The tax-induced holding periods of real estate Investors: Theory and empirical evidence

This article reexamines holding period decisions in real estate investment. It develops and empirically tests a holding period model recognizing not only taxes but also refinancing and investor-specific determinants. Based on a sample of over 1,000 real estate transactions with observed holding periods, the results of our tests support the conclusion that investors' consumption and investment preferences and prevailing market interest rates are more important than tax issues in determining the holding periods of real estate investors.     

Realizing the Potential of Real Options: Does Theory Meet Practice?

The idea of viewing corporate investment opportunities as “real options” has been around for over 25 years. Real options concepts and techniques now routinely appear in academic research in finance and economics, and have begun to influence scholarly work in virtually every business discipline, including strategy, organizations, management science, operations management, information systems, accounting, and marketing. Real options concepts have also made considerable headway in practice. Corporate managers are more likely to recognize options in their strategic planning process, and have become more proactive in designing flexibility into projects and contracts, frequently using real options vocabulary in their discussions. Thanks in part to the spread of real options thinking, today's strategic planners are more likely than their predecessors to recognize the “option” value of actions like the following: ? dividing up large projects into a number of stages; ? investing in the acquisition or production of information; ? introducing “modularity” in manufacturing and design; ? developing competing prototypes for new products; and ? investing in overseas markets. But if real options has clearly succeeded as a way of thinking, the application of real options valuation methods has been limited to companies in relatively few industries and has thus failed to live up to expectations created in the mid‐ to late‐1990s. Increased corporate acceptance and implementations of real options valuation techniques will require several changes coming together. On the theory side, we need more realistic models that better reflect differences between financial and real options, simple heuristic methods that can be more easily implemented (but that have been carefully benchmarked against more precise models), and better guidance on implementation issues such as the estimation of discount rates for the “optionless” underlying projects. On the practitioner side, we need user‐friendly real options software, more senior‐level buy‐in, more deliberate diffusion of real options knowledge throughout organizations, better alignment of managerial incentives with long‐term shareholder value, and better‐designed contracts to correct the misalignment of incentives across the value chain. If these challenges can be met, there will continue to be a steady if gradual diffusion of real options analysis throughout organizations over the next few decades, with real options eventually becoming not only a standard part of corporate strategic planning, but also the primary valuation tool for assessing the expected shareholder effect of large capital investment projects.     

Does real flexibility help firms navigate the COVID-19 pandemic?

Building on the investment-based asset pricing framework, we show that firms' ability to timely scale down their operations reduces the sensitivity of their equity value to large adverse productivity shocks. Using U.S. data in the times of the COVID-19 pandemic, we provide empirical evidence consistent with our model's predictions. Real flexibility curbs losses in firm value and reduces return volatility, especially for firms with high book-to-market or high COVID-19 exposure, consistent with the idea that the benefits of real flexibility are associated primarily with contraction options during the COVID-19 crisis. Our analysis shows that real flexibility provides incremental and complementary protection beyond financial flexibility. Besides its impact on stock prices, real flexibility also helps firms sustain earnings during 2020, compared with 2019 when the pandemic had not struck. Our work demonstrates that real flexibility is an important tool for corporate managers in navigating episodes of disasters.     

Asset value management in the Portuguese real estate sector

This paper analyzes whether real estate investment fund managers use asset valuation discretion strategically to achieve financial reporting objectives. Portuguese real estate investment funds represent a unique opportunity to investigate executive behavior regarding accounting choice, as fund managers may choose to use historical cost, fair value or a mixed system (historical cost with internal revaluations) to value fund properties. We also investigate the factors that influence this strategic behavior. Empirical results confirm that fund managers manage asset valuations in order to avoid net asset value declines, particularly in a period of financial distress. We also observe that funds with a higher level of past unconditional conservatism are more likely to manage asset values. With respect to corporate governance issues, we conclude that audit quality reduces managerial discretion and that the conflicts that may arise between fund management company shareholders and fund participants due to management fees do not seem to have impact on fund managers’ opportunistic behavior.     

法国个人房地产税体系透视

在法国,与个人房地产相关的税种包括居住税、建筑土地税、空置住宅税、财富税。法国的个人房地产税在税制要素、税基评估和税收争议等方面形成了相对合理的制度安排,其实践经验对我国开征物业税有借鉴意义。     

房地产信托业发展综述及展望

随着房地产调控的逐渐深入,楼市交易冷淡,造成了房地产企业资金回笼不畅,加之银行信贷紧缩,使其开始采取房地产信托的方式来融资,这直接导致了房地产信托业的繁荣。但繁荣的背后,其兑付风险逐渐显现并加大。本文分析了房地产信托发展的利与弊以及其行业内部累积的风险,同时提出防范和化解风险的对策,最后提出了房地产信托投资基金REITs是房地产信托的未来发展方向。     

Are real estate specializing depositories viable? Evidence from commercial banks

This study investigates whether depository institutions that concentrate on real estate lending are economically viable by examining the behavior of a sample of commercial banks that chose over the last decade to specialize in real estate lending. The results show that over the 1978–1988 period, the average real estate specializing bank earnings performance was on par with regular commercial banks, and those that were in the business for a longer period of time had higher returns with less risk than substantially more diversified commercial banks. Real estate banks has relatively lower loan losses and relatively higher proportions of lower risk, one- to four-family mortgage loans than regular commercial banks. Finally, it appears that real estate banks exhibited substantial flexibility in their ability to adjust their real estate loan holdings.     

产品营销策略与房地产品牌建设研究

房地产行业已经进入品牌营销的时代,但部分房地产企业在提升房地产品牌时过于注重外在形象而忽略了内在品质,是本末倒置,是不能将品牌长期的维持和经营下去的.房地产企业要树品牌、创名牌,要使企业品牌深入人心,首要的、关键的在于向公众推出优质的房产、合理的户型设计和完善的物业管理等.也就是说原来房地产企业只注重项目的质量的观念必须更新了,加强房地产产品整体概念的质量,才会提升房地产企业品牌和项目品牌.面对日益激烈的市场竞争,房地产企业需要认真考虑如何创立品牌,并以品牌营销提升自己的竞争力,确立自己在行业的主导地位,做未来房地产市场的赢家.     

房地产投资和金融支持实体经济的交互影响研究--基于环沪都市圈的分析

基于房地产市场与金融发展的紧密关系,本文将房地产投资、金融发展与实体经济发展纳入同一框架进行综合研究。首先梳理房地产、金融效率的环沪都市圈1发展现状,深入探讨房地产、金融与宏观经济增长的作用机制。然后以2003~2016年环沪都市圈为样本,采用交互效应模型分析房地产投资通过金融体系间接影响经济发展的综合效应。分析得到的主要结论包括:环沪都市圈房地产投资对实体经济发展整体呈现一定的负向作用,主要是抑制了金融支持实体经济的效率,两者负相关系数为0.75;经实证研究进一步发现,在经济发展水平较弱、金融化程度越高的城市群,房地产投资对金融支持实体经济效率的抑制作用更加显著,是全部样本的2.4倍,这也恰好解释了浙北经济长期落后于苏南的原因。     

房地产金融属性的表现及经济含义:以美国房地产市场为例

随着金融自由化及经济资本化的深入,房地产金融属性的增强成为以美国为代表的全球房地产市场发展最大的特点。房地产的异质性被金融属性抹平,而波动的同步性增强,全球房地产市场首次同步繁荣,甚至开始脱离实体经济而自我膨胀。房地产金融属性的增强,使其更容易产生繁荣-萧条式的大幅波动。因此,需适当控制房地产金融属性。     

我国房地产投资信托基金（REITs）法律制度困境及对策研究

我国房地产融资主要来自商业银行,融资结构与渠道亟待破局。为撬动民间资本,调整房地产融资结构,降低金融机构的信贷风险并拓宽投资者理财渠道,对我国在当前法律制度环境下推行REITs进行可行性分析,并从REITs专项与配套立法、组织结构模式、操作运行模式以及投资报酬设计等几个方面提出我国REITS发展的建设性的意见和建议。     

加强房地产业管理,有效支持地方经济社会发展的思考——以延边州为例

近些年延边房地产业呈现出较快发展势头,在拉动延边经济增长,加快城市建设与社会发展等方面起到了较好的推动作用。但与沿海发达地区相比,延边仍存在城市规划滞后、房地产市场监管不力等现实问题,一些资金实力差、诚信度低、技术力量弱的开发企业进入房地产开发领域,出现了无证销售、一房多卖、办理虚假按揭等现象。房地产业能否健康稳定发展,不仅影响银行的经营和发展,还会削弱银行支持地方经济社会发展能力。因此我们应当正视现实,寻找差距,加强房地产业管理,有效支持延边经济社会发展。     

Doctoral Dissertations

This section of the Journal publishes summaries and abstracts of dissertations related to a broad cross-section of real estate issues. Areas of interest include government policy and planning, real estate business and industry issues, property, contract and transaction types, real estate decision-making processes, market analysis, and related methodological and theoretical issues. If you know of any real estate-related dissertation that may not appear in standard sources but think would be of interest to our readers, please contact the co-editor at the address noted above.     

Alpha and Persistence in Real Estate Fund Performance

This paper investigates whether fund managers investing in the direct real estate market can systematically and persistently deliver superior risk-adjusted returns. The research that has been published has typically focused on the performance of managers trading public real estate securities. Our study draws on a unique data set of commercial real estate funds collated by the Investment Property Databank (IPD) in the United Kingdom, covering up to 280 funds over the period 1981 to 2006. The widespread finding is that very few managers appear to be able to generate excess risk-adjusted returns. Furthermore, there is little evidence of performance persistence in either fund returns or risk-adjusted fund returns.     

金融周期对房地产价格的影响——基于SV-TVP-VAR模型的实证研究

本文利用2004-2016年的季度数据构建金融周期综合指数,用以描述金融市场景气程度;使用SV-TVP-VAR模型,围绕金融周期对我国房地产价格的影响进行实证研究。结果表明,金融周期对房地产价格的影响具有明显的时变性特征:2008年以前金融市场繁荣对房价有稳定推升作用,2008年后该影响持续弱化;与之类似,实体经济对房价的影响同样自2008年起逐渐减小。这意味着,在经济增长方式转变和经济结构调整的过程中,我国房地产价格对经济金融冲击的敏感度已经大幅下降,金融扩张可能难以再通过房地产市场有效带动实体经济的繁荣,相反,其反而可能导致银行贷款不良率的攀升,在金融系统内积累系统性风险。我国针对房地产的宏观调控政策不仅对控制贷款不良率的提高体现出积极作用,而且自2008年国际金融危机以来,产出及房价的随机波动率均呈显著下降趋势,风险得到有效控制。未来应更加重视房地产市场调控在宏观审慎政策框架中的重要地位,遏制房地产金融化泡沫化势头,防范房地产市场引发金融危机。