Dimensions
172 x 241 x 12mm
What is the value of the options associated with multi-phase real estate projects, and how is such value related specifically to design and planning alternatives? To date, we have not had satisfactory, widely applicable, practical means to value these options. Extensive development of what is typically called dquo;real optionsndquo; valuation theory and methodology has occurred in the academic literature. In principle, this academic literature can provide useful tools and insights. But in reality there has been almost no uptake of this potential in actual decision-making and valuation practice. One problem has been lack of transparency and communicability to non-specialized decision makers.
We now have the ability to bring a scientific, practical approach to bear on an old problem; we can now obtain solid, data-driven valuations of the options inherent in multi-phase real estate development projects. This represents a significant step forward in the assessment, and thus the choice, of alternative designs or plans for major real estate projects and urban infrastructure.
The authors advocate use of simple models which can be built in universal spreadsheet software such as Excel®, which helps to overcome this problem. Another barrier to widespread application has been lack of good empirical data quantifying the key uncertainty input parameters required by the real option valuation models. Now however, new sources of reliable market data and recent methodological developments enable the presentation of rigorous valuation of the options associated with multi-phase real estate projects, what we label Odquo;scientificIdquo; valuation.
The authors demonstrate how these tools of analysis enable us to develop a new perspective on the planning, design, and implementation or operation of multi-phase real estate projects, and consequently give us the opportunity to significantly improve the design and planning or operation of these investments.
Part A explains the concepts underlying the approach. It presents the overall framework, providing an easily accessible overview for the general reader, and a roadmap for the prospective analyst. Part B describes the tools in detail, taking care to go through the constituent elements of the approach step-by-step for clarity and easy reference. Part C draws the important implications of the analysis for the design of both the physical structure of projects, and of the financial arrangements for sharing the investments and returns among the stakeholders (the Adquo;waterfall analysisEdquo;).
