Creating a practical model using real options to evaluate large-scale real estate development projects

Real Options analysis has only begun to be recognized as way to evaluate real estate and is considered "beyond the cutting edge" of financial analysis. Several academic papers have looked at ways that real estate can be analyzed using real options; however a universally practical financial model using real options has not successfully been achieved. There are several reasons why real options analysis has not quickly come to the forefront of financial analysis. The first obstacle is that real options analysis can be quite rigorous and mathematically complex, making it difficult to be easily adopted by the everyday analyst. Presently, the most common method of analyzing real estate is using Discounted Cash Flow, which is relatively systematic and can be universally understood by most persons in the finance world. However, real options theory is not nearly as intuitive, even to the most sophisticated financial persons. There is no tried and true, universally recognized methodology for real options analysis of real estate, at least not yet. Discounted Cash Flow does a very good job analyzing most real estate. However, complex, multi-phased, or very speculative developments justify significantly more sophisticated analysis methods, such as real options.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Architecture.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2005

Author dc:creator

• Hengels, Adam (Adam P.)

Advisor dc:contributor.advisor

• David Geltner.

• Architecture.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/33198

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/33198