Flexibility and Real Estate Valuation under Uncertainty

16Garden City: An Example Multi‐Asset Development Project: We Present the Traditional DCF Valuation Spreadsheet Model for the Example Development Project We use in the Rest of Book

LEARNING OBJECTIVES

• See example spreadsheet DCF model of a development project that produces multiple assets over several periods of time;
• Understand how to deal with the timing of the development process;
• Understand how to deal with flow of revenues from several assets over time;
• Consider the base case evaluation of the overall project;
• See assessment of project economics, including OCC and NPV.

OUTLINE OF THE CHAPTER

1. 16.1 Overview of Multi‐Asset Development Project
2. 16.2 Structure of a Realistic Multi‐Asset Spreadsheet Pro Forma
3. 16.3 Cash Flows for the Example Pro Forma
4. 16.4 Temporal Profile for Base Case
5. 16.5 Expected Economics of the Garden City Project
6. 16.6 Conclusion

Chapters 11 and 12 introduced the basic economics of real estate development. They covered the essential elements of investments in development projects: land commitment, time‐to‐build, forward purchase, leverage, uncertainty, and flexibility. They also showed how flexibility can add value to such projects. But the example in Chapter 12, though intuitive, was quite simplistic. We need to see how to evaluate flexibility to manage uncertainty in more realistic situations.

This chapter introduces and explains a pro forma spreadsheet model of a realistic development project, which will enable us to explore and estimate ...