Commercial Real Estate Market Property Level Capital Expenditures: An Options Analysis

The Journal of Real Estate Finance and Economics - Option pricing theory predicts that capital improvement expenditures are positively linked with high or increasing market lease rates. Ceteris...     

Risk analysis in the real property development process: a conceptual framework and a computer simulation model

Real property development is an interdisciplinary field that produces interesting time-risk questions for the various participants. The conceptual framework of the process is a normative staging of activities and related decision points. The framework provides the theoretical foundation for the application of management science techniques to this complex environment. The computer simulation model is a straightforward quantification of the conceptual framework. The equations incorporated in the model are common to financial and appraisal literature with alterations designed to encompass the unique aspects of the real property development process. The model is a tool for use in the application of sensitivity analysis to development period decision making. At various decision points in the process the decision maker can evaluate alternative risk control techniques on a cost-benefit basis using the model.     

An Investment Analysis and Decision Making Framework for Real Estate Development*

Recent research analyzing real estate investment decisionmaking has concentrated upon existing income properties. Projects planned for future development have been analyzed as though they were completed and generating rental income. Such analysis has not considered the impact of development period decisions upon operating cash flow and hence project value. This paper proposes a framework for investment analysis which accurately reflects the interrelatedness of the development and operating periods of the real estate development process. A stochastic Markov process is used to develop a model which treats the development and operating periods as an integrated system. The resulting model allows project investment decisions to be made on the basis of a minimum expected profitability index distribution and/or terminal value.