Real Estate as a Financial Asset

Office building investment decision

Dossier / Travail , 2008 , 54 Pages , Note: 90%

Gestion d'entreprise - Investissement et Financement

A developer named Jemima bought a plot of land. She acquired this in order to develop the land, want to erect an office-building complex and to sell this one after completion of constructions. The question is, at which point of time should she starts the construction works with the aim to maximize the surplus of the property development, when she going to sell it. Based on a few key assumptions, it should be examined, what could be possible strategies and how the uncertainties of future expectations can influence these decisions. The assignment transfers the share market instrument of "options" to the real estate market investment process.

Inhaltsverzeichnis (Table of Contents)

• List of Figures
• 1 Introduction
• 2 General Assumptions
  • 2.1 Land characteristics
  • 2.2 Loan characteristics
  • 2.3 Construction characteristics
  • 2.4 Sale characteristics
  • 2.5 Time characteristics
• 3 Standard Project Scenario
• 4 Alternative Project Scenarios
  • 4.1 Alternative case 1 – extra cost for management and holding
  • 4.2 Alternative case 2 – change in volatility of office properties
  • 4.3 Alternative case 3 – change in correlation of volatilities
  • 4.4 Alternative case 4 – change in land increasing rates
• List of Literature
• List of Appendices

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This assignment aims to analyze the optimal timing for starting construction works on an office building development project to maximize the surplus from the sale of the completed property. The analysis is based on a set of key assumptions and explores the impact of various uncertainties on the decision-making process. The assignment focuses on the standard case scenario and then examines four alternative scenarios, each with a specific deviation from the standard case.

• Determining the optimal timing for construction commencement to maximize development surplus.
• Analyzing the impact of land value appreciation, construction costs, and property value volatility on the decision.
• Evaluating the influence of different financing and loan characteristics on the development strategy.
• Exploring the implications of alternative scenarios, such as changes in management costs, property value volatility, and land value appreciation rates.
• Developing a framework for decision-making in the context of real estate development under uncertainty.

Zusammenfassung der Kapitel (Chapter Summaries)

The introduction provides a brief overview of the assignment's context, outlining the scenario of a developer named Jemima who seeks to maximize the surplus from developing and selling an office building complex. The chapter establishes the key question of determining the optimal timing for construction commencement.

Chapter 2 outlines the general assumptions that form the basis for the analysis. It defines the standard case scenario, including land characteristics, loan characteristics, construction characteristics, sale characteristics, and time characteristics. This chapter lays the foundation for the subsequent analysis by establishing a set of baseline parameters.

Chapter 3 delves into the standard project scenario, analyzing the decision-making process under the defined assumptions. It examines the development surplus, opportunity value, and decision status at different stages of the development process. This chapter provides a comprehensive analysis of the standard case, highlighting the key factors influencing the decision.

Chapter 4 explores four alternative project scenarios, each with a specific deviation from the standard case. These scenarios examine the impact of changes in management costs, property value volatility, correlation of volatilities, and land value appreciation rates. This chapter provides insights into the sensitivity of the decision to various uncertainties and explores the potential implications of these changes on the development strategy.

Schlüsselwörter (Keywords)

The key words and focus themes of the text include real estate development, office building investment, development surplus, construction timing, land value appreciation, property value volatility, financing, loan characteristics, and alternative scenarios. The analysis explores the optimal timing for construction commencement, considering the impact of various uncertainties and alternative scenarios on the decision-making process.

• Université: University of Wuppertal
• Note: 90%
• Auteur: Ulf Klose (Auteur)
• Année de publication: 2008
• Pages: 54
• N° de catalogue: V126266
• ISBN (ebook): 9783640322947
• ISBN (Livre): 9783640321025
• Langue: anglais
• mots-clé: Real, Estate, Financial, Asset, Office