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Real Estate Development as an Option

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Author Info
Williams, Joseph T
Abstract

Subject to legal limitations, the owner of undeveloped real estate can determine both the date and density at which to develop his property. Alternatively, he can abandon his property. The value of these options depends partly on the stochastic evolution through time of the operating revenues and construction costs of developed property. In this paper the option pricing problem is solved analytically and numerically for the optimal data and density of development, the optimal date of abandonment, and the resulting market values of the developed and undeveloped properties. Copyright 1991 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Journal of Real Estate Finance & Economics.

Volume (Year): 4 (1991)
Issue (Month): 2 (June)
Pages: 191-208
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Handle: RePEc:kap:jrefec:v:4:y:1991:i:2:p:191-208

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Web page: http://www.springerlink.com/link.asp?id=102945

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  1. Bun Lee & Eui-Chul Chung & Yong Kim, 2004. "Dwelling Age, Redevelopment, and Housing Prices: The Case of Apartment Complexes in Seoul," The Journal of Real Estate Finance and Economics, Springer, vol. 30(1), pages 55-80, October. [Downloadable!] (restricted)
  2. Laarni Bulan & Christopher J. Mayer & C. Tsuriel Somerville, 2006. "Irreversible Investment, Real Options, and Competition: Evidence from Real Estate Development," NBER Working Papers 12486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Grenadier, Steven R. & Wang, Neng, 2005. "Investment under Uncertainty and Time-Inconsistent Preferences," Research Papers 1899, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  4. Abdullah Yavas & C. Sirmans, 2005. "Real Options: Experimental Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 31(1), pages 27-52, August. [Downloadable!] (restricted)
  5. Rose Lai & Ko Wang & Jing Yang, 2007. "Stickiness of Rental Rates and Developers’ Option Exercise Strategies," The Journal of Real Estate Finance and Economics, Springer, vol. 34(1), pages 159-188, January. [Downloadable!] (restricted)
  6. Steven R. Grenadier & Neng Wang, 2005. "Investment Timing, Agency, and Information," NBER Working Papers 11148, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Jason Winfree & Jill McCluskey & Ron Mittelhammer, 2006. "Buyer-Type Effects in Conservation and Preservation Property Values," The Journal of Real Estate Finance and Economics, Springer, vol. 33(2), pages 167-179, September. [Downloadable!] (restricted)
  8. Dominik Weiß, 2009. "Keeping the Bubble Alive! The Effects of Urban Renewal and Demolition Subsidies in the East German Housing Market," IWH Discussion Papers 11-09, Halle Institute for Economic Research. [Downloadable!]
  9. Jyh-Bang Jou & Tan Lee, 2008. "Neutral Property Taxation Under Uncertainty," The Journal of Real Estate Finance and Economics, Springer, vol. 37(3), pages 211-231, October. [Downloadable!] (restricted)
  10. Catherine Chambers & Paul Chambers & John Whitehead, 1997. "Historical resources, uncertainty and preservation values: An application of option and optimal stopping models," Journal of Economics and Finance, Springer, vol. 21(2), pages 51-61, June. [Downloadable!] (restricted)
  11. Dean Paxson, 2007. "Sequential American Exchange Property Options," The Journal of Real Estate Finance and Economics, Springer, vol. 34(1), pages 135-157, January. [Downloadable!] (restricted)
  12. Said Boukendour, Rahim Bah, 2001. "The guaranteed maximum price contract as call option," Construction Management & Economics, Taylor and Francis Journals, vol. 19(6), pages 563-567, October. [Downloadable!] (restricted)
  13. Robert Fourt & Gianluca Marcato & Charles Ward, 2007. "Real Option Pricing in Mixed-use Development Projects," Real Estate & Planning Working Papers rep-wp2007-09, Henley Business School, Reading University. [Downloadable!]
  14. Brent Ambrose, 2005. "Forced Development and Urban Land Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 30(3), pages 245-265, April. [Downloadable!] (restricted)
  15. Jianjun Miao & Neng Wang, 2007. "Investment, Consumption, and Hedging under Incomplete Markets," NBER Working Papers 13250, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Jyh-Bang Jou & Tan Lee, 2007. "Do Tighter Restrictions on Density Retard Development?," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 225-232, February. [Downloadable!] (restricted)
  17. Flavia Cortelezzi & Giovanni Villani, 2007. "Strategic Technology Adoption and Market Dynamics as Option Games," Quaderni DSEMS 14-2007, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia. [Downloadable!]
  18. Jianjun Miao & Neng Wang, 2004. "Risk, Uncertainty, and Option Exercise," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-136, Boston University - Department of Economics. [Downloadable!]
    Other versions:
  19. Tien Foo Sing, 2002. "Time to build options in construction processes," Construction Management & Economics, Taylor and Francis Journals, vol. 20(2), pages 119-130, March. [Downloadable!] (restricted)
  20. Dean Paxson, 2005. "Multiple State Property Options," The Journal of Real Estate Finance and Economics, Springer, vol. 30(4), pages 341-368, June. [Downloadable!] (restricted)
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