Real Estate as a Financial Asset: Office building investment decision
Seminar paper from the year 2008 in the subject Business economics - Investment and Finance, grade: 90%, University of Wuppertal, language: English, abstract: A developer named Jemima bought a plot of land. She acquired this in order to develop the land, want to erect an office-building complex and to sell this one after completion of constructions. The question is, at which point of time should she starts the construction works with the aim to maximize the surplus of the property development, when she going to sell it. Based on a few key assumptions, it should be examined, what could be possible strategies and how the uncertainties of future expectations can influence these decisions. The assignment transfers the share market instrument of "options" to the real estate market investment process.
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1,05127 Probability Downward 1,05127 Surrounding facts 40 Table 5,00 years Risk Appendix B extra Appendix C changing Appendix D changing based on constr Binominal Calculations Land Calculations Land Value changing in land changing in property changing volatility correlation Compounded Risk free Construction Cost 70,00 debt service effects Decision status Develop Wait Wait Developed Site office Development surplus Downward movement-d 0,95123 Eur Volatility 5,00 extra holding cost facts Period 5,00 free rate 5,00 increase and debt interest rate 5,00 Klose Appendix page land increasing rates Land surplus Management Cost Constant Office building–investment decision office property pay-off p.a. Holding p.a. Loan interest p.a. Risk neutral possible development value Probability Downward movement-d Probability Upward movement property value volatility Risk free rate Risk neutral probability Selling Pay-off expected Surrounding facts Period Table 1 Standard Table 2 Alterantive Ulf Klose Appendix value an options Value increasing rate Volatility 5,00 Wait Develop Wait Wait Wait Develop year(s