Flexibility and Real Estate Valuation under Uncertainty

20Modular Production Timing Flexibility: We Explore the Timing Option to Pause and Restart the Project Any Time After its Commencement

LEARNING OBJECTIVES

• Understand the nature of modular production timing flexibility in real estate development projects;
• Learn how to model and value such flexibility using spreadsheet simulation analysis of DCF;
• Understand how the value of this flexibility depends on the trigger levels for the implementation of the delay option;
• Exploration of synergy or redundancy among timing options: combining modular production with the start‐delay option.

OUTLINE OF THE CHAPTER

1. 20.1 Modular Production Timing Flexibility
2. 20.2 Modeling the Modular Production Option
3. 20.3 Value of Modular Production Timing Flexibility
4. 20.4 Effect of Trigger Values (Bias toward Pause or Continue)
5. 20.5 Effect of Combining Start‐Delay and Modular Production Delay Flexibility
6. 20.6 Conclusion

The flexibility to delay the start of a project, which we explored in the previous chapter, is common. However, it is only one type of option for the timing of production in development projects. Indeed, Chapter 15 described three different types of timing options: overall project start timing, modular production timing, and phasing. We now look at the second of these.

Modular production timing flexibility is the option to pause the production process of a multi‐asset development project after the project has started. To enable developers to implement this flexibility, the ...