Intensity and Timing Options in Real Estate Developments

Yongqiang Chu and Tien Foo Sing

International Real Estate Review, 2021, vol. 24, issue 1, 1-17

Abstract: Developers make decisions around timing and intensity simultaneously when exercising a development option. Built on the early real options models, we allow the demand shock and the cost functions to be dependent on the intensity of real estate development. Based on a set of input parameters, the numerical results show that demand uncertainty delays development activities, and the rental elasticity to density change has an inverse effect on the deferment option values. In a market where the intensity impact on rental income is small, development activities are likely to be curtailed when market volatility increases. More empirical tests could be conducted on whether more smaller-scale projects are triggered in down markets relative to up markets.

Keywords: Real Options; Optimal timing; Optimal Intensity; Real Estate Development. (search for similar items in EconPapers)
JEL-codes: L85 (search for similar items in EconPapers)
Date: 2021
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International Real Estate Review is currently edited by Professor Sing Tien Foo and Professor Ko Wang

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