nach oben

The Journal of Real Estate Finance and Economics

Erschienen in:

01.10.2011

Development Value: A Real Options Approach Using Empirical Data

verfasst von: Robert A. Grovenstein, James B. Kau, Henry J. Munneke

Erschienen in: The Journal of Real Estate Finance and Economics | Ausgabe 3/2011

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This paper combines an empirical methodology and a theoretical options approach to determine the real option values of development and delay for vacant parcels of land in the City of Chicago. A theoretical options model provides an option price that incorporates future uncertainty. The data allow for disaggregation down to specific land use categories and results show option values vary across zoning categories and within zoning categories for specific land uses.

Vorheriger Artikel Momentum in Residential Real Estate

Nächster Artikel The Limited-Service Brokerage Decision: Theory and Evidence

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

It should be noted that Grenadier (1995) implies that the option may effectively expire due to preemption.

Other theoretical, real option research in real estate includes Grenadier (1995, 1996), Geltner et al. (1996), and Holland et al. (2000).

The option to delay development modeled as a compound option is presented in Somerville (2001).

The result in Eq. 3 is slightly different than Quigg’s (1993) research. There appears to be a misreported exponent of (γ/(−γ)) from the derivative of the residual function. The impact of this understates the optimal building size for γ < 1 which leads to lower values of the development option.

The maximum building size is computed using the floor to area ratio (FAR) and the lot size; δ = FAR * LOTSIZ.

The 20% land to developed value ratio can be obtained from Eq. 9. The 1% income divided by 5% implies that land is 20% of the total value after development, P.

Annual price volatilities are computed using the hedonic estimation results to create an index over the holding period. The result is an annual price volatility range from 16% to 30%.

A section is one square mile or 640 acres. So a quarter section is a half mile square or one quarter of a square mile or 160 acres.

The central business district is defined as the corner of State and Madison.

The models used to estimate the cost elasticity have R-squared ranging from 0.95 to 0.99.

The hedonic estimates provide a market pricing mechanism for improved properties.

The delay option premium reported is the average of the delay premium found for each observation. The delay premium is defined as \( \left( {{V_i} - V_i^I} \right)/{V_i} \).

Black, F., & Scholes, M. (1973). The pricing of options and corporate liabilities. The Journal of Political Economy, 81(3), 637–654.CrossRef

Brennan, M., & Schwartz, E. (1985). Evaluating natural resource investment. Journal of Business, 58, 1135–1157.

Bulan, L. T., Mayer, C., & Somerville, C. T. (2009). Irreversible investment, real options, and competition: evidence from real estate development. Journal of Urban Economics, 65, 237–251.CrossRef

Capozza, D. R., & Li, Y. (2001). Residential investment and interest rates: an empirical test of land development as a real option. Real Estate Economics, 29, 503–519.CrossRef

Capozza, D. R., & Li, Y. (2002). Optimal land development decisions. Journal of Urban Economics, 51, 123–142.CrossRef

Cunningham, C. R. (2006). House price uncertainty, timing of development, and vacant land. Journal of Urban Economics, 59, 1–31.CrossRef

Cunningham, C. R. (2007). Growth controls, real options and land development. The Review of Economics and Statistics, 89, 343–358.CrossRef

Geltner, D., Riddiough, T., & Stojanovic, S. (1996). Insights on the effect of land use choice: the perpetual option on the best of two underlying assets. Journal of Urban Economics, 39, 20–50.CrossRef

Grenadier, S. (1995). Valuing lease contracts: a real options approach. Journal of Financial Economics, 38, 297–331.CrossRef

Grenadier, S. R. (1996). The strategic exercise of options: investment cascades and overbuilding in real estate market. Journal of Finance, 51, 1653–1679.CrossRef

Holland, S., Ott, S., & Riddiough, T. (2000). The role of uncertainty in investment: an examination of competing investment models using commercial real estate data. Real Estate Economics, 28(1), 33–64.CrossRef

McDonald, R., & Siegel, D. (1986). The value of waiting to invest. Quarterly Journal of Economics, 101, 707–727.CrossRef

Merton, R. C. (1973). Theory of rational option pricing. Bell Journal of Economics and Management Science (The RAND Corporation), 4(1), 141–183.CrossRef

Quigg, L. (1993). Empirical testing of real option-pricing models. Journal of Finance, 2, 621–640.CrossRef

Somerville, C. T. (2001). Permits, starts, and completions: structural relationships versus real options. Real Estate Economics, 29, 161–190.CrossRef

Titman, S. (1985). Urban land prices under uncertainty. The American Economic Review, 75(3), 505–514.

Williams, J. (1991). Real estate development as an option. Journal of Real Estate Finance and Economics, 4, 191–208.CrossRef

Titel: Development Value: A Real Options Approach Using Empirical Data
verfasst von: Robert A. Grovenstein
James B. Kau
Henry J. Munneke
Publikationsdatum: 01.10.2011
Verlag: Springer US
Erschienen in: The Journal of Real Estate Finance and Economics / Ausgabe 3/2011
Print ISSN: 0895-5638
Elektronische ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-010-9277-9

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 3/2011

On the Relationship Between Property Price, Time-on-Market, and Photo Depictions in a Multiple Listing Service

Arbitrage Free Price Bounds for Property Derivatives

Momentum in Residential Real Estate

Inconsistency in Welfare Inferences from Distance Variables in Hedonic Regressions

The Limited-Service Brokerage Decision: Theory and Evidence

An Analysis of Lockups in REIT IPOs