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Debundling Property Rights for Contaminated Properties: Valuing the Opportunity Cost of the Right to Sell, Using Cumulative Options

  • Robert A. Simons

    (Ph.D, Levin College of Urban Affairs, Cleveland State University, Cleveland, Ohio 44122, R.simons@csuhio.edu, Tel: (216) 687 5259, Fax: (216) 687 9342.)

  • Ron Throupe

    (Ph.D., MRICS, Franklin L. Burns School of Real Estate & Const. Mgmt, Daniels College of Business, University of Denver, Denver CO 80208, rthroupe@du.edu, Tel: (303) 871-4738, Fax (303) 871-2971.)

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    This paper examines the loss of control of the ability to time the sale or develop property as an intrinsic benefit of the bundle of ownership rights. This right, proxied by the real option to control property, can be hindered by the existence of contamination. An empirical analysis of a contaminated site is used to illustrate the cumulative effect of this sell option and a measurement of financial loss. The results of a survey are used to determine the likely value of the real estate option and its effect on the subject property as part of the overall value. The results suggest a value for the sell (call) option which is dependent on the time before expiration. For the case study and ten year time period used in this research, 27% to 40% of the property value is estimated as the value of the loss in ability to sell.

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    Article provided by Asian Real Estate Society in its journal International Real Estate Review.

    Volume (Year): 15 (2012)
    Issue (Month): 2 ()
    Pages: 231-252

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    Handle: RePEc:ire:issued:v:15:n:02:2012:p:231-252
    Contact details of provider: Postal: Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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    1. Thomas O. Jackson, 2001. "Environmental Risk Perceptions of Commercial and Industrial Real Estate Lenders," Journal of Real Estate Research, American Real Estate Society, vol. 22(3), pages 271-288.
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    11. Shilling, James D. & Sirmans, C. F. & Turnbull, Geoffrey K. & Benjamin, John D., 1990. "A theory and empirical test of land option pricing," Journal of Urban Economics, Elsevier, vol. 28(2), pages 178-186, September.
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