5Future Outcomes Cover a Range of Possibilities: We Can Describe Uncertainties in Real Estate Using Probability Distributions of Possible Future Outcomes

Let’s now begin to face the reality of the uncertainties that we inevitably encounter in real estate investment and development. Demand rises and falls; prices and rents do likewise; and governments change taxes, zoning, and other regulations. In short, the future is uncertain. The “forecast is always wrong” in that what actually occurs almost always differs in some way from the pro forma projection.

This reality, this uncertainty, underlies the value of flexibility, the value of the manager’s ability to adapt plans to actual circumstances. While a quiet, uneventful life has its attractions, secure, unvarying returns, on average, yield the lowest returns, the risk‐free rate. The uncertainty and variability in the market provides the opportunities ...

Get Flexibility and Real Estate Valuation under Uncertainty now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.