Flexibility and Real Estate Valuation under Uncertainty : A Practical Guide for Developers.
Geltner, David.
Flexibility and Real Estate Valuation under Uncertainty : A Practical Guide for Developers. - 1st ed. - 1 online resource (258 pages)
Intro -- Title Page -- Copyright Page -- Contents -- Foreword -- Authors' Preface -- Acknowledgments -- About the Companion Website -- Chapter 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 Why the Focus on the Discounted Cash Flow Model? -- 1.2 Structure of a Discounted Cash Flow Spreadsheet -- 1.3 The Cash Flow Projection -- 1.4 Discount Rate -- 1.5 Market Value and Forward-Looking (Ex-Ante) Analysis -- 1.6 Backward-Looking (Ex-Post) Analysis -- 1.7 Conclusion -- Chapter 2 Economics of the Discounted Cash Flow Valuation Model: Understanding the Discount Rate is Critical -- 2.1 Choice of Discount Rate -- 2.2 Differences between Discount Rate, Opportunity Cost of Capital, and Internal Rate of Return -- 2.3 Net Present Value -- 2.4 Relationship between Discount Rate, Growth Rate, and Income Yield -- 2.5 Relationship between Discount Rate and Risk -- 2.6 Conclusion -- Chapter 3 Future Scenarios Matter: We Need to Recognize that Future Projections are Uncertain -- 3.1 The Standard Discounted Cash Flow Model Appears to be Deterministic -- 3.2 We Live in a World of Uncertainty -- 3.3 Discounted Cash Flow Pro Forma Cash Flows Are Expectations -- 3.4 Flexibility and Options -- 3.5 Conclusion -- Chapter 4 Scenario Analysis: Future Scenarios can Significantly and Surprisingly Affect the Present Value -- 4.1 Discounted Cash Flow Scenario Analysis -- 4.2 Scenarios Affect Value -- 4.3 Flexibility Has Value -- 4.4 Conclusion -- Chapter 5 Future Outcomes Cover a Range of Possibilities: We Can Describe Uncertainties in Real Estate Using Probability Distributions of Possible Future Outcomes -- 5.1 Distribution of Future Outcomes -- 5.2 Quantifying Input Distributions. 5.3 Distributions of Outcomes Differ from Distributions of Inputs -- 5.4 Flaw of Averages -- 5.5 Conclusion -- Chapter 6 Simulation of Outcomes: Simulation is a Practical, Efficient Way to Explore Uncertainty and to choose between Alternative Strategies for Managing it -- 6.1 Generating Scenarios -- 6.2 Real Estate Simulation in a Nutshell -- 6.3 Simulation Is an Efficient Process -- 6.4 Number of Trials -- 6.5 Conclusion -- Chapter 7 Modeling Price Dynamics: Using Pricing Factors to Model the Dynamics of Real Estate Markets -- 7.1 Pricing Factors -- 7.2 Random Walks -- 7.3 Real Estate Pricing Factor Dynamics -- 7.4 Conclusion -- Chapter 8 Interpreting Simulation Results: Target Curves and Scatterplots can be used to Graph the Distribution of the Sample Output -- 8.1 Target Curves -- 8.2 Comparing Target Curves -- 8.3 Value at Risk -- 8.4 Scatterplots -- 8.5 Conclusion -- Chapter 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 -- 9.1 The Resale Timing Problem -- 9.2 Extending the Time Horizon of the Discounted Cash Flow Model -- 9.3 IF Statements -- 9.4 Trigger Value for Stop-Gain Rule -- 9.5 Value of Example Stop-Gain Rule -- 9.6 Conclusion -- Chapter 10 Resale Timing Decision: Discussion: Let's think about Additional Insights we can get from Simulation -- 10.1 Sensitivity Analysis -- 10.2 When to Use the Stop-Gain Rule -- 10.3 Implications of Flexibility for Property Valuation -- 10.4 Conclusion -- Chapter 11 Development Project Valuation: This Chapter Looks at Valuation of Development Projects From an Investment Perspective, Considering Uncertainty, Flexibility, and Time-to-Build -- 11.1 Time-to-Build Difference between Development Projects and Existing Assets -- 11.2 Lower Opportunity Cost of Capital for Construction Costs. 11.3 Illustrative Example -- 11.4 Residual Value of Development Land -- 11.5 Investment Risk in Development Project -- 11.6 Conclusion -- Chapter 12 Basic Flexibility in Development Projects: The Most Basic Flexibility in Real Estate Development is the Option to Choose whether and when to Build -- 12.1 Review of Call (and Put) Options -- 12.2 Land as a Call Option on Development -- 12.3 Drivers of Option Value -- 12.4 A Practical Example of a Call (and Put) Option -- 12.5 Flexibility and Scenario Analysis for Development Projects -- 12.6 Conclusion -- Chapter 13 Option Dichotomies: We Introduce a Typology of Flexibility in Development Projects -- 13.1 Three Dichotomies for Thinking Generally about Development Options -- 13.2 Defensive versus Offensive Options -- 13.3 Options "On" and "In" Projects -- 13.4 Timing Options versus Product Options -- 13.5 Conclusion -- Chapter 14 Product Options in Development: We Discuss Three types of Product Options -- 14.1 Concept of Base Plan -- 14.2 Product Expansion Flexibility -- 14.3 Product Mix Flexibility -- 14.4 Conclusion -- Chapter 15 Timing Options in Development: Now we Turn to the Types of Timing Options -- 15.1 Project Start-Timing Flexibility (The Delay Option) -- 15.2 Project Production Timing Flexibility -- 15.3 Modular Production Timing Flexibility -- 15.4 Phasing Timing Flexibility -- 15.5 Types of Phasing -- 15.6 Recognizing Defensive and Offensive Options in Simulation Results -- 15.7 Conclusion -- Chapter 16 Garden City: An Example Multi-Asset Development Project: We Present the Traditional DCF Valuation Spreadsheet Model for the Example Development Project We use in the Rest of Book -- 16.1 Overview of Multi‐Asset Development Project -- 16.2 Structure of a Realistic Multi-Asset Spreadsheet Pro Forma -- 16.3 Cash Flows for the Example Pro Forma -- 16.4 Temporal Profile for Base Case. 16.5 Expected Economics of the Garden City Project -- 16.6 Conclusion -- Chapter 17 Effect of Uncertainty without Flexibility in Development Project Evaluation: We Re-analyze the Garden City Project by Reflecting Uncertainty Without Flexibility -- 17.1 Modeling Uncertainty for the Multi-Asset Development Project -- 17.2 Generating Random Future Scenarios -- 17.3 Outcomes Reflecting Uncertainty for the Multi-Asset Development -- 17.4 Effect of Different Probability Inputs Assumptions -- 17.5 Conclusion -- Chapter 18 Project Start-Delay Flexibility: We Model the Value of the Most Basic and Widely Available Development Project Option -- 18.1 Project Start-Delay Option -- 18.2 Option Exercise Decision Rule -- 18.3 Defining "Profit" in the Decision Model -- 18.4 Value of Start-Delay Flexibility in the Garden City Project -- 18.5 Conclusion -- Chapter 19 Decision Rules and Value Implications: We Further Explore the Option to Delay the Project Start -- 19.1 Simple Myopic Delay Rule -- 19.2 Trigger Values -- 19.3 Value Implications of the Decision Rules -- 19.4 Effect of Trigger Values (Start or Delay Bias) -- 19.5 Review the Meaning of Flexibility Value -- 19.6 Conclusion -- Chapter 20 Modular Production Timing Flexibility: We Explore the Timing Option to Pause and Restart the Project Any Time After its Commencement -- 20.1 Modular Production Timing Flexibility -- 20.2 Modeling the Modular Production Option -- 20.3 Value of Modular Production Timing Flexibility -- 20.4 Effect of Trigger Values (Bias toward Pause or Continue) -- 20.5 Effect of Combining Start-Delay and Modular Production Delay Flexibility -- 20.6 Conclusion -- Chapter 21 Product Mix Flexibility: This Chapter Presents the Option to Change Product Mix, and Examines the Effect of Volatility on Option Value -- 21.1 Product Mix Flexibility -- 21.2 Modeling the Product Mix Option. 21.3 Value of Product Mix Flexibility -- 21.4 Effect of Combining Product Mix Flexibility and Timing Options -- 21.5 Effect of Correlation in the Product Markets on the Value of Product Mix Flexibility -- 21.6 Effect of Volatility on the Value of Flexibility -- 21.7 Conclusion -- Chapter 22 Project Phasing Flexibility: We Show How to Model and Evaluate the Delay Flexibility Inherent in Project Phasing -- 22.1 Modeling the Sequential Phase Delay Option -- 22.2 Modifying the Garden City Project Plan -- 22.3 Project Economics -- 22.4 The Delay Decision Model -- 22.5 Exploring the Value of Project Phasing Flexibility -- 22.6 Conclusion -- Chapter 23 Optimal Phasing: We Now look at Adding Phases, Delineating Phases, and Distinguishing them from Expansion Options -- 23.1 Effect of Increasing the Number of Phases -- 23.2 Principles for Optimal Phasing -- 23.3 What Is the Difference between a Phase and an Expansion Option? -- 23.4 Conclusion -- Chapter 24 Overall Summary: We summarize the Main Takeaway Points from this Book -- Appendix: Quantifying Real Estate Uncertainty: Let's Think about the Inputs for Real Estate Simulation Models -- A.1 The Real Estate System -- A.2 Sources of Uncertainty and Some Practical Advice for Simulation -- A.3 The Nature of Real Estate Price Dynamics and Uncertainty -- A.4 PuttingIt All Together -- Glossary -- Acronyms and Symbols -- Index -- EULA.
9781119106456
Real estate investment.
Electronic books.
HD1387 .G45 2018
Flexibility and Real Estate Valuation under Uncertainty : A Practical Guide for Developers. - 1st ed. - 1 online resource (258 pages)
Intro -- Title Page -- Copyright Page -- Contents -- Foreword -- Authors' Preface -- Acknowledgments -- About the Companion Website -- Chapter 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 Why the Focus on the Discounted Cash Flow Model? -- 1.2 Structure of a Discounted Cash Flow Spreadsheet -- 1.3 The Cash Flow Projection -- 1.4 Discount Rate -- 1.5 Market Value and Forward-Looking (Ex-Ante) Analysis -- 1.6 Backward-Looking (Ex-Post) Analysis -- 1.7 Conclusion -- Chapter 2 Economics of the Discounted Cash Flow Valuation Model: Understanding the Discount Rate is Critical -- 2.1 Choice of Discount Rate -- 2.2 Differences between Discount Rate, Opportunity Cost of Capital, and Internal Rate of Return -- 2.3 Net Present Value -- 2.4 Relationship between Discount Rate, Growth Rate, and Income Yield -- 2.5 Relationship between Discount Rate and Risk -- 2.6 Conclusion -- Chapter 3 Future Scenarios Matter: We Need to Recognize that Future Projections are Uncertain -- 3.1 The Standard Discounted Cash Flow Model Appears to be Deterministic -- 3.2 We Live in a World of Uncertainty -- 3.3 Discounted Cash Flow Pro Forma Cash Flows Are Expectations -- 3.4 Flexibility and Options -- 3.5 Conclusion -- Chapter 4 Scenario Analysis: Future Scenarios can Significantly and Surprisingly Affect the Present Value -- 4.1 Discounted Cash Flow Scenario Analysis -- 4.2 Scenarios Affect Value -- 4.3 Flexibility Has Value -- 4.4 Conclusion -- Chapter 5 Future Outcomes Cover a Range of Possibilities: We Can Describe Uncertainties in Real Estate Using Probability Distributions of Possible Future Outcomes -- 5.1 Distribution of Future Outcomes -- 5.2 Quantifying Input Distributions. 5.3 Distributions of Outcomes Differ from Distributions of Inputs -- 5.4 Flaw of Averages -- 5.5 Conclusion -- Chapter 6 Simulation of Outcomes: Simulation is a Practical, Efficient Way to Explore Uncertainty and to choose between Alternative Strategies for Managing it -- 6.1 Generating Scenarios -- 6.2 Real Estate Simulation in a Nutshell -- 6.3 Simulation Is an Efficient Process -- 6.4 Number of Trials -- 6.5 Conclusion -- Chapter 7 Modeling Price Dynamics: Using Pricing Factors to Model the Dynamics of Real Estate Markets -- 7.1 Pricing Factors -- 7.2 Random Walks -- 7.3 Real Estate Pricing Factor Dynamics -- 7.4 Conclusion -- Chapter 8 Interpreting Simulation Results: Target Curves and Scatterplots can be used to Graph the Distribution of the Sample Output -- 8.1 Target Curves -- 8.2 Comparing Target Curves -- 8.3 Value at Risk -- 8.4 Scatterplots -- 8.5 Conclusion -- Chapter 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 -- 9.1 The Resale Timing Problem -- 9.2 Extending the Time Horizon of the Discounted Cash Flow Model -- 9.3 IF Statements -- 9.4 Trigger Value for Stop-Gain Rule -- 9.5 Value of Example Stop-Gain Rule -- 9.6 Conclusion -- Chapter 10 Resale Timing Decision: Discussion: Let's think about Additional Insights we can get from Simulation -- 10.1 Sensitivity Analysis -- 10.2 When to Use the Stop-Gain Rule -- 10.3 Implications of Flexibility for Property Valuation -- 10.4 Conclusion -- Chapter 11 Development Project Valuation: This Chapter Looks at Valuation of Development Projects From an Investment Perspective, Considering Uncertainty, Flexibility, and Time-to-Build -- 11.1 Time-to-Build Difference between Development Projects and Existing Assets -- 11.2 Lower Opportunity Cost of Capital for Construction Costs. 11.3 Illustrative Example -- 11.4 Residual Value of Development Land -- 11.5 Investment Risk in Development Project -- 11.6 Conclusion -- Chapter 12 Basic Flexibility in Development Projects: The Most Basic Flexibility in Real Estate Development is the Option to Choose whether and when to Build -- 12.1 Review of Call (and Put) Options -- 12.2 Land as a Call Option on Development -- 12.3 Drivers of Option Value -- 12.4 A Practical Example of a Call (and Put) Option -- 12.5 Flexibility and Scenario Analysis for Development Projects -- 12.6 Conclusion -- Chapter 13 Option Dichotomies: We Introduce a Typology of Flexibility in Development Projects -- 13.1 Three Dichotomies for Thinking Generally about Development Options -- 13.2 Defensive versus Offensive Options -- 13.3 Options "On" and "In" Projects -- 13.4 Timing Options versus Product Options -- 13.5 Conclusion -- Chapter 14 Product Options in Development: We Discuss Three types of Product Options -- 14.1 Concept of Base Plan -- 14.2 Product Expansion Flexibility -- 14.3 Product Mix Flexibility -- 14.4 Conclusion -- Chapter 15 Timing Options in Development: Now we Turn to the Types of Timing Options -- 15.1 Project Start-Timing Flexibility (The Delay Option) -- 15.2 Project Production Timing Flexibility -- 15.3 Modular Production Timing Flexibility -- 15.4 Phasing Timing Flexibility -- 15.5 Types of Phasing -- 15.6 Recognizing Defensive and Offensive Options in Simulation Results -- 15.7 Conclusion -- Chapter 16 Garden City: An Example Multi-Asset Development Project: We Present the Traditional DCF Valuation Spreadsheet Model for the Example Development Project We use in the Rest of Book -- 16.1 Overview of Multi‐Asset Development Project -- 16.2 Structure of a Realistic Multi-Asset Spreadsheet Pro Forma -- 16.3 Cash Flows for the Example Pro Forma -- 16.4 Temporal Profile for Base Case. 16.5 Expected Economics of the Garden City Project -- 16.6 Conclusion -- Chapter 17 Effect of Uncertainty without Flexibility in Development Project Evaluation: We Re-analyze the Garden City Project by Reflecting Uncertainty Without Flexibility -- 17.1 Modeling Uncertainty for the Multi-Asset Development Project -- 17.2 Generating Random Future Scenarios -- 17.3 Outcomes Reflecting Uncertainty for the Multi-Asset Development -- 17.4 Effect of Different Probability Inputs Assumptions -- 17.5 Conclusion -- Chapter 18 Project Start-Delay Flexibility: We Model the Value of the Most Basic and Widely Available Development Project Option -- 18.1 Project Start-Delay Option -- 18.2 Option Exercise Decision Rule -- 18.3 Defining "Profit" in the Decision Model -- 18.4 Value of Start-Delay Flexibility in the Garden City Project -- 18.5 Conclusion -- Chapter 19 Decision Rules and Value Implications: We Further Explore the Option to Delay the Project Start -- 19.1 Simple Myopic Delay Rule -- 19.2 Trigger Values -- 19.3 Value Implications of the Decision Rules -- 19.4 Effect of Trigger Values (Start or Delay Bias) -- 19.5 Review the Meaning of Flexibility Value -- 19.6 Conclusion -- Chapter 20 Modular Production Timing Flexibility: We Explore the Timing Option to Pause and Restart the Project Any Time After its Commencement -- 20.1 Modular Production Timing Flexibility -- 20.2 Modeling the Modular Production Option -- 20.3 Value of Modular Production Timing Flexibility -- 20.4 Effect of Trigger Values (Bias toward Pause or Continue) -- 20.5 Effect of Combining Start-Delay and Modular Production Delay Flexibility -- 20.6 Conclusion -- Chapter 21 Product Mix Flexibility: This Chapter Presents the Option to Change Product Mix, and Examines the Effect of Volatility on Option Value -- 21.1 Product Mix Flexibility -- 21.2 Modeling the Product Mix Option. 21.3 Value of Product Mix Flexibility -- 21.4 Effect of Combining Product Mix Flexibility and Timing Options -- 21.5 Effect of Correlation in the Product Markets on the Value of Product Mix Flexibility -- 21.6 Effect of Volatility on the Value of Flexibility -- 21.7 Conclusion -- Chapter 22 Project Phasing Flexibility: We Show How to Model and Evaluate the Delay Flexibility Inherent in Project Phasing -- 22.1 Modeling the Sequential Phase Delay Option -- 22.2 Modifying the Garden City Project Plan -- 22.3 Project Economics -- 22.4 The Delay Decision Model -- 22.5 Exploring the Value of Project Phasing Flexibility -- 22.6 Conclusion -- Chapter 23 Optimal Phasing: We Now look at Adding Phases, Delineating Phases, and Distinguishing them from Expansion Options -- 23.1 Effect of Increasing the Number of Phases -- 23.2 Principles for Optimal Phasing -- 23.3 What Is the Difference between a Phase and an Expansion Option? -- 23.4 Conclusion -- Chapter 24 Overall Summary: We summarize the Main Takeaway Points from this Book -- Appendix: Quantifying Real Estate Uncertainty: Let's Think about the Inputs for Real Estate Simulation Models -- A.1 The Real Estate System -- A.2 Sources of Uncertainty and Some Practical Advice for Simulation -- A.3 The Nature of Real Estate Price Dynamics and Uncertainty -- A.4 PuttingIt All Together -- Glossary -- Acronyms and Symbols -- Index -- EULA.
9781119106456
Real estate investment.
Electronic books.
HD1387 .G45 2018