Real Estate Investments
Effective Rent
The term “effective rent” is used to evaluate and compare the profitability of leased real estate. In essence, it represents the present value of rental income, translated across […]
Archive
Category: Commercial Real Estate Analysis and Investments, D. M. Geltner, N. G. Miller, J. Clayton, P. Eichholtz
Real Estate Development
OCC of Real Estate Development
Investments in real estate consist of various stages, and at each stage, both the risk and the corresponding expected return (Opportunity Cost of Capital) differ. Initially, risks are […]
Derivatives
Options Theory & Overbuilding
It appears that option theory explains well why periodic overbuilding is both inevitable and, at the same time, rational. While other theories (e.g., the DiPasquale-Wheaton 4-Quadrant Diagram) often […]
Real Estate Development
Samuelson-McKean formula for RE
So when should land development actually occur? We know that postponing a project has value, just like an option, and this affects the price of land. Using a […]
Derivatives
Why the Option Valuation works in Real Estate
Is it worth buying land for a development project if the business plan shows a negative NPV?The initial reaction is “no,” but the decision is not that simple. […]
Real Estate Investments
Hazard Function & Yield Degradation
Fixed-income assets come with default risk. For example, the default probability statistics for commercial mortgages by years since loan origination look like this: Source: Commercial Real Estate Analysis […]
Real Estate Investments
Loan Prepayment Option Valuation
For a real estate investor, it’s important to understand how valuable a loan refinancing option is, which can be assessed using the Black-Scholes financial options pricing model. For […]