Real Options and Urban Land Values: A Review of the Literature

Kiplan S. Womack

Journal of Real Estate Literature, 2015, vol. 23, issue 1, 53-63

Abstract: The central and unifying theme of this review is the value of urban land and its effect on investments in durable capital. More specifically, because structures are expensive to build, have an extensive construction time, and are long lasting, investments in durable capital entail a significant degree of uncertainty and irreversibility. I examine the estimation of the redevelopment option and explore the relationship between real options and land values. I also examine the determinants of the decision to redevelop physical capital either in whole (teardowns) or in part (renovations). Overall, this critical analysis contributes to a better understanding of urban land values by unifying the real option and redevelopment decision literatures within a broader context of real estate valuation. Both academics and practitioners should find the analysis relevant to their own real estate studies or investment decisions.

Date: 2015
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DOI: 10.1080/10835547.2015.12090398

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