The value of flexible design : real estate investment and development strategy under uncertainty

Abstract

Utilizing recent research into building life cycle analysis and option valuation theory, this thesis develops an architectural methodology for analyzing buildings' "capacity for change," and economic models for valuing this capacity. Together these can be used to evaluate strategies for the design, investment, and development of new and existing buildings. Two hypothetical case studies illustrate the methods and models, and produce results which challenge conventional wisdom. One case study suggests that including a redevelopment option can increase the valuation of moderately performing assets by up to 25% over conventional discounted cash flow analysis, even when redevelopment is not economically feasible in the near term. The other case study fInds that when zoning allows, the design and construction of a building which can flexibly switch between multiple uses can be economically viable, even when substantial additional costs are incurred.