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Flexibility and Real Estate Valuation under Uncertainty

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Beschreibung

Provides a revolutionary conceptual framework and practical tools to quantify uncertainty and recognize the value of flexibility in real estate development
This book takes a practical 'engineering' approach to the valuation of options and flexibility in real estate. It presents simple simulation models built in universal spreadsheet software such as Microsoft Excel®. These realistically reflect the varying and erratic sources of uncertainty and price dynamics that uniquely characterize real estate. The text covers new analytic procedures that are valuable for existing properties and enable a new, more profitable perspective on the planning, design, operation, and evaluation of large-scale, multi-phase development projects. The book thereby aims to significantly improve valuation and investment decision making.
Flexibility and Real Estate Valuation under Uncertainty: A Practical Guide for Developers is presented at 3 levels. First, it introduces and explains the concepts underlying the approach at a basic level accessible to non-technical and non-specialized readers. Its introductory and concluding chapters present the important 'big picture' implications of the analysis for economics and valuation and for project design and investment decision making.
At a second level, the book presents a framework, a roadmap for the prospective analyst. It describes the practical tools in detail, taking care to go through the elements of the approach step-by-step for clarity and easy reference.
The third level includes more technical details and specific models. An Appendix discusses the technical details of real estate price dynamics. Associated web pages provide electronic spreadsheet templates for the models used as examples in the book.
Some features of the book include:
•    Concepts and tools that are simple and accessible to a broad audience of practitioners;
•    An approach relevant for all development projects;
•    Complementarity with the author's Commercial Real Estate Analysis & Investments-the most-cited real estate investments textbook on the market.
Flexibility and Real Estate Valuation under Uncertainty: A Practical Guide for Developers is for everyone studying or concerned with the implementation of large-scale or multi-phase real estate development projects, as well as property investment and valuation more generally.

DAVID GELTNER, PhD is Professor of Real Estate Finance in the MIT Department of Urban Studies & Planning. He has taught for over 15 years in the MIT Center for Real Estate, playing a lead role in its Master of Science in Real Estate Development (MSRED) program. Geltner is a winner of the prestigious Pension Real Estate Association's Graaskamp Award for excellence and influence in the real estate investment industry.

RICHARD DE NEUFVILLE, PhD is Professor of Engineering Systems at the Massachusetts Institute of Technology. He has received many international professional and teaching awards, including the Sizer Award for the Most Significant Contribution to MIT Education.

Autorentext

DAVID GELTNER, PhD is Professor of Real Estate Finance in the MIT Department of Urban Studies & Planning. He has taught for over 15 years in the MIT Center for Real Estate, playing a lead role in its Master of Science in Real Estate Development (MSRED) program. Geltner is a winner of the prestigious Pension Real Estate Association's Graaskamp Award for excellence and influence in the real estate investment industry.

RICHARD DE NEUFVILLE, PhD is Professor of Engineering Systems at the Massachusetts Institute of Technology. He has received many international professional and teaching awards, including the Sizer Award for the Most Significant Contribution to MIT Education.

Klappentext

PROVIDES A REVOLUTIONARY CONCEPTUAL FRAMEWORK AND PRACTICAL TOOLS TO QUANTIFY UNCERTAINTY AND RECOGNIZE THE VALUE OF FLEXIBILITY IN REAL ESTATE DEVELOPMENT

This book takes a practical "engineering" approach to the valuation of options and flexibility in real estate. It presents simple simulation models built in universal spreadsheet software such as Microsoft Excel®. These realistically reflect the varying and erratic sources of uncertainty and price dynamics that uniquely characterize real estate. The text covers new analytic procedures that are valuable for existing properties and enable a new, more profitable perspective on the planning, design, operation, and evaluation of large-scale, multi-phase development projects. The book thereby aims to significantly improve valuation and investment decision making.

Flexibility and Real Estate Valuation Under Uncertainty: A Practical Guide for Developers is presented at 3 levels. First, it introduces and explains the concepts underlying the approach at a basic level accessible to non-technical and non-specialized readers. Its introductory and concluding chapters present the important "big picture" implications of the analysis for economic and valuation and for project design and investment decision making.

At a second level, the book presents a framework, a roadmap for the prospective analyst. It describes the practical tools in detail, taking care to go through the elements of the approach step-by-step for clarity and easy reference.

The third level includes more technical details and specific models. An Appendix discusses the technical details of real estate price dynamics. Associated web pages provide electronic spreadsheet templates for the models used as examples in the book.

Some features of the book include:

  • Concept and tools that are simple and accessible to a broad audience of practitioners;
  • An approach relevant for all development projects;
  • It complements the author's Commercial Real Estate Analysis & Investmentsthe most-cited real estate investments textbook on the market.

Flexibility and Real Estate Valuation Under Uncertainty: A Practical Guide for Developers is for everyone studying or concerned with the implementation of large-scale or multi-phase real estate development projects, as well as property investment and valuation more generally.

Inhalt

Foreword xiii

Author's Preface xvii

Acknowledgement xxi

About the Companion Website xxiii

1 Discounted Cash Flow Valuation: The Basic Procedures and Concepts Underlying Spreadsheet Valuation Constitute the Springboard to our Approach of Analyzing Flexibility Under Uncertainty 1

1.1 Why the Focus on the Discounted Cash Flow Model? 2

1.2 Structure of a Discounted Cash Flow Spreadsheet 3

1.3 The Cash Flow Projection 5

1.4 Discount Rate 7

1.5 Market Value and Forward?]Looking (Ex?]Ante) Analysis 7

1.6 Backward?] Looking (Ex?]Post) Analysis 9

1.7 Conclusion 9

2 Economics of the Discounted Cash Flow Valuation Model: Understanding the Discount Rate is Critical 11

2.1 Choice of Discount Rate 11

2.2 Differences between Discount Rate, Opportunity Cost of Capital, and Internal Rate of Return 13

2.3 Net Present Value 14

2.4 Relationship between Discount Rate, Growth Rate, and Income Yield 15

2.5 Relationship between Discount Rate and Risk 18

2.6 Conclusion 19

3 Future Scenarios Matter: We Need to Recognize that Future Projections are Uncertain 21

3.1 The Standard Discounted Cash Flow Model Appears to be Deterministic 21

3.2 We Live in a World of Uncertainty 23

3.3 Discounted Cash Flow Pro Forma Cash Flows Are Expectations 24

3.4 Flexibility and Options 26

3.5 Conclusion 26

4 Scenario Analysis: Future Scenarios can Significantly and Surprisingly Affect the Present Value 27

4.1 Discounted Cash Flow Scenario Analysis 27

4.2 Scenarios Affect Value 29

4.3 Flexibility Has Value 30

4.4 Conclusion 32

5 Future Outcomes Cover a Range of Possibilities: We Can Describe Uncertainties in Real Estate Using Probability Distributions of Possible Future Outcomes 33

5.1 Distribution of Future Outcomes 34

5.2 Quantifying Input Distributions 34

5.3 Distributions of Outcomes Differ from Distributions of Inputs 38

5.4 Flaw of Averages 39

5.5 Conclusion 40

6 Simulation of Outcomes: Simulation is a Practical, Efficient Way to Explore Uncertainty and to choose between Alternative Strategies for Managing it 41

6.1 Generating Scenarios 41

6.2 Real Estate Simulation in a Nutshell 42

6.3 Simulation Is an Efficient Process 43

6.4 Number of Trials 44

6.5 Conclusion 45

7 Modeling Price Dynamics: Using Pricing Factors to Model the Dynamics of Real Estate Markets 47

7.1 Pricing Factors 47

7.2 Random Walks 49

7.3 Real Estate Pricing Factor Dynamics 51

7.4 Conclusion 52

8 Interpreting Simulation Results: Target Curves and Scatterplots can be used to Graph the Distribution of the Sample Output 53

8.1 Target Curves 53

8.2 Comparing Target Curves 57

8.3 Value at Risk 57

8.4 Scatterplots 57

8.5 Conclusion 59

9 Resale Timing Decision: Analysis: Let's See what happens when we apply the Tools of Flexibility Analysis to a Classical Investment Decision: when to sell the Property 61

9.1 The Resale Timing Problem 62

9.2 Extending the Time Horizon of the Discounted Cash Flow Model 62

9.3 IF Statements 63

9.4 Trigger Value for Stop?]Gain Rule 64

9.5 Value of Example Stop?]Gain Rule 64

9.6 Conclusion 68

10 Resale Timing Decision: Discussion: Let's think about Additional Insights we can get from Simulation 69

10.1 Sensitivity Analysis 69

10.2 When to Use the Stop?]Gain Rule 70

10.3 Implications of Flexibility for Property Valuation 71

10.4 Conclusion 72

11 Development Project Valuation: This Chapter Looks at Valuation of Development Projects From an Investment Perspective, Considering Uncertainty, Flexibility, and Time?]to?]Build 73

11.1 Time?]to?]Build Difference between Development Projects and Existing Assets 74

11.2 Lower Opportunity Cost of Capital for Construction Costs 75

11.3 Illustrative Example 77

11.4 Residual Value of Development Land 78

11.5 Investment Risk in Development Project 79

11.6 Conclusion 80

12 Basic Flexibility in Development Projects: The Most Basic Flexibility in Real Estate Development is the Option to Choose whether and when to Build 83

12.1 Review of Call (and Put) Options 84

12.2 Land as a Call Option on Development 85

12.3 Drivers of Option Value 85

12.4 A Practical Example of a Call (and Put) Option 86

12.5 Flexibility and Scenario Analysis for Development Projects 88

12.6 Conclusion 90

13 Option Dichotomies: We Introduce a Typology of Flexibility in Development Projects 91

13.1 Three Dichotomies for Thinking Generally about Development Options 91

...

Produktinformationen

Titel: Flexibility and Real Estate Valuation under Uncertainty
Untertitel: A Practical Guide for Developers
Autor:
EAN: 9781119106456
Digitaler Kopierschutz: Adobe-DRM
Format: E-Book (pdf)
Hersteller: Wiley-Blackwell
Genre: Betriebswirtschaft
Anzahl Seiten: 256
Veröffentlichung: 19.02.2018
Dateigrösse: 25.0 MB