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dc.contributor.authorGeltner, David M
dc.contributor.authorKumar, Anil
dc.contributor.authorvan de Minne, Alexander
dc.date.accessioned2021-09-03T19:44:20Z
dc.date.available2020-08-26T15:33:10Z
dc.date.available2021-09-03T19:44:20Z
dc.date.issued2018-07
dc.identifier.issn1067-8433
dc.identifier.urihttps://hdl.handle.net/1721.1/126820.2
dc.description.abstractIn this article, we define a new construct for urban economic and investment analysis, which revisits the conventional wisdom that investment in real estate development is riskier than investment in stabilized property assets. This new construct, referred as a “development asset value index” (DAVI), is a value index for newly developed properties (only) in a given geographical property market. It tracks longitudinal changes in the highest and best use (HBU) value of locations, and it reveals developer and landowner behavior taking advantage of the optionality inherent in land ownership. In particular, the DAVI reflects developers' use of flexibility in the exercise of the call option to (re)develop the property to any legal use and density. We empirically estimate a DAVI for commercial property (i.e., central locations) and compare it with a corresponding traditional transaction-price-based property asset price index (PAPI) corrected for depreciation. We believe that the difference primarily reflects the realized value of flexibility in land development. We find that the DAVIs display greater value growth and are smoother over time and less cyclical than their corresponding PAPIs for the same locations. This suggests that developers successfully use flexibility, and that development may be riskier than stabilized property investment due primarily only to leverage effects (construction costs). Practical implications are also discussed.en_US
dc.language.isoen
dc.publisherWileyen_US
dc.relation.isversionofhttp://dx.doi.org/10.1111/1540-6229.12258en_US
dc.rightsCreative Commons Attribution-Noncommercial-Share Alikeen_US
dc.rights.urihttp://creativecommons.org/licenses/by-nc-sa/4.0/en_US
dc.sourceSSRNen_US
dc.titleRiskiness of Real Estate Development: A Perspective from Urban Economics and Option Value Theoryen_US
dc.typeArticleen_US
dc.identifier.citationGeltner, David et al. “Riskiness of Real Estate Development: A Perspective from Urban Economics and Option Value Theory.” Real Estate Economics, 48, 2 (July 2018): 406-445 © 2018 The Author(s)en_US
dc.contributor.departmentMassachusetts Institute of Technology. Center for Real Estateen_US
dc.contributor.departmentMassachusetts Institute of Technology. Department of Urban Studies and Planningen_US
dc.relation.journalReal Estate Economicsen_US
dc.eprint.versionAuthor's final manuscripten_US
dc.type.urihttp://purl.org/eprint/type/JournalArticleen_US
eprint.statushttp://purl.org/eprint/status/PeerRevieweden_US
dc.date.updated2020-08-25T17:32:10Z
dspace.date.submission2020-08-25T17:32:12Z
mit.journal.volume48en_US
mit.journal.issue2en_US
mit.licenseOPEN_ACCESS_POLICY
mit.metadata.statusCompleteen_US


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