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Paper eres2005_200:
A Real Options Approach to Development Land Valuation

id eres2005_200
authors Hutchison, Norman E. and Rainer Schulz
year 2005
title A Real Options Approach to Development Land Valuation
source Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society
summary Flexibility is an inherent part of project developments, and the value associated with flexibility is an integral part of the total value of undeveloped sites. The standard decision rule states that the development should be undertaken when the residual value is positive and left undone if it is negative. However, if it is possible to postpone the development decision, then the standard rule can lead to premature development and an underassessment of land value. The real options approach treats explicitly the flexibility that is inherent in any project development and seems to be an attractive complement to standard valuation approaches. Empirical studies on real options are generally in short supply. A way to assess the content of the theory and its applicability is to compare valuations undertaken using a real options approach, with observed transaction prices.
series ERES:conference
type normal paper
discussion No discussions. Post discussion ...
session Session B4
last changed 2008/11/01 09:47
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