Optimal holding period In Real Estate Portfolio
AbstractThis paper considers the use of simulated cash flows to determine the optimal holding period in real estate portfolio to maximize its present value. The traditional DCF approach with an estimation of the resale value through a growth rate of the future cash flow does not let appear this optimum. However, if the terminal value is calculated from the trend of a diffusion process of the price, an optimum may appear under certain conditions. Finally we consider the sensitivity of the optimal holding period to the different parameters involved in the cash flow estimations. This methodology may be applied in commercial valuation and enables to get an optimal holding period for a given portfolio.
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Bibliographic InfoPaper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2006-21.
Date of creation: 2006
Date of revision:
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valuation; DCF; optimal holding period; commercial property;
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"Combining Monte Carlo Simulations and Options to Manage the Risk of Real Estate Portfolios,"
ESSEC Working Papers
WP1115, ESSEC Research Center, ESSEC Business School.
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