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Intensity and Timing Options in Real Estate Developments

Author

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  • Chu, Yongqiang

    (University of North Carolina)

  • Sing, Tien Foo

    (National University of Singapore)

Abstract

Developers make decisions around timing and intensity simultaneously when exercising a development option. Built on the early real options models, we allow the demand shock and the cost functions to be dependent on the intensity of real estate development. Based on a set of input parameters, the numerical results show that demand uncertainty delays development activities, and the rental elasticity to density change has an inverse effect on the deferment option values. In a market where the intensity impact on rental income is small, development activities are likely to be curtailed when market volatility increases. More empirical tests could be conducted on whether more smaller-scale projects are triggered in down markets relative to up markets.

Suggested Citation

  • Chu, Yongqiang & Sing, Tien Foo, 2021. "Intensity and Timing Options in Real Estate Developments," International Real Estate Review, Global Social Science Institute, vol. 24(1), pages 1-17.
    • Handle: RePEc:ire:issued:v:24:n:01:2021:p:1-17
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Real Options; Optimal timing; Optimal Intensity; Real Estate Development.;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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