Flexibility and Real Estate Valuation under Uncertainty

24Overall Summary: We summarize the Main Takeaway Points from this Book

LEARNING OBJECTIVES

• Recognize the importance of explicit modeling of uncertainty and flexibility in real estate investment analysis and project evaluation;
• Grasp the basic, practical tools, methods, and techniques for such modeling, using common computer spreadsheet software;
• Gain some insight and intuition regarding the nature and magnitude of the value of flexibility in real estate development projects, including downside outcome protection, upside outcome opportunities, and the value of common‐sense and parsimonious, direct, behavior analog modeling.

As they say when your plane touches down, “we hope you have had a pleasant journey,” in this case, through this book. You probably had to “fasten your seatbelts” in a few places. But if you have gotten to this point, and we have helped you to think hard about some important questions, then we would like to think we have piloted you through a worthwhile journey. Let’s very briefly review and summarize here our (and, we hope, your) journey.

First, most basically, and importantly, we have tried to show how important it is to explicitly consider not only uncertainty but also flexibility in the analysis and evaluation of real estate investments, particularly development projects. At the basic level, this point was a big part of the first part of this book. There, we first reviewed the classical DCF valuation model. We showed its fundamental economic ...