Multiple State Property Options

Multiple State Property Options Before taking strategic actions in property investments, consider the type and number of expansion, contraction and suspension alternatives and the future profit volatility. The optimal investment strategy for a current or prospective property owner should reflect the expected variability of future profits (rent times occupancy times units available), and current profits relative to threshold trigger profits for a variety of alternative states and actions. These alternatives include remaining idle, building and operating properties, expanding, contracting, suspending, reverting to normal service or reduced service capacity, or abandoning. A valuation model is developed for up to eight different options, each with a distinct trigger. Then numerical solutions show optimal profit triggers and valuations for each of these real options. Generally, increasing the number of options reduces the investment and abandonment triggers, and increases the values of the investment option and total option values, given these alternatives and parameters. The relevant parameters will depend on the investment context and feasible actions, but generally include interest rates, profit volatility, and irrecoverable costs of investment, expansion, contracting, suspension and abandonment. Generally increases in investment costs reduce the value of upward options, and increases the optimal triggers for exercising those options. Increases in expected profit volatility increase the value of all options, increases investment triggers and decreases abandonment triggers. These generic models may be appropriate for many contexts where the costs of changing states are partially irrecoverable, yet where management has some flexibility to alter scale, quality and pricing of assets and services. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Multiple State Property Options

Loading next page...
 
/lp/springer_journal/multiple-state-property-options-6IjEguXhmp
Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2005 by Springer Science + Business Media, Inc.
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-005-7012-8
Publisher site
See Article on Publisher Site

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

Monthly Plan

  • Read unlimited articles
  • Personalized recommendations
  • No expiration
  • Print 20 pages per month
  • 20% off on PDF purchases
  • Organize your research
  • Get updates on your journals and topic searches

$49/month

Start Free Trial

14-day Free Trial

Best Deal — 39% off

Annual Plan

  • All the features of the Professional Plan, but for 39% off!
  • Billed annually
  • No expiration
  • For the normal price of 10 articles elsewhere, you get one full year of unlimited access to articles.

$588

$360/year

billed annually
Start Free Trial

14-day Free Trial