Eres : Digital Library : Works

Paper eres2017_162:
The implied internal rate of return in conventional residual valuations of development sites

id eres2017_162
authors Crosby, Neil; Steven Devaney, Peter Wyatt
year 2017
title The implied internal rate of return in conventional residual valuations of development sites
source 24th Annual European Real Estate Society Conference in Delft, Netherlands
summary Explicit discounted cash flow methods are used in many countries to assess the value of property investments or their likely rate of return given a particular price. These are typically supplemented by simpler models for the purpose of estimating market value and this has led to debate over the merits of different approaches. A parallel situation exists in the case of UK development sites: both cash flow appraisals and simpler residual valuations are used by the real estate industry to assess site values and development viability. Yet traditional residual valuation methods involve making assumptions that are inconsistent with financial theory and this makes it difficult to compare the required returns for such schemes against those used for other investment opportunities. Hence, in this paper, we explore the relationship between the profit and interest allowances used in traditional residual valuation models and the internal rates of return that they appear to imply. This is done with reference to a number of simulated examples of different schemes and the implications for practice are then assessed.
keywords Development appraisal; Development viability; Internal rate of return; Residual valuation
series ERES:conference
type paper session
discussion No discussions. Post discussion ...
ratings
session Urban & Real Estate Development and Regeneration
last changed 2017/11/18 16:20
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