Real options analysis as a decision-making tool - A preliminary investigation of the real estate investment executive perspective

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Journal ISSN
Volume Title
School of Engineering | D4 Julkaistu kehittämis- tai tutkimusraportti tai -selvitys
Date
2015
Major/Subject
Mcode
Degree programme
Language
en
Pages
26
Series
Aalto University publication series SCIENCE + TECHNOLOGY, 3/2015
Abstract
This paper attempts to identify literature where real options analysis (ROA) has enhanced real estate investment analysis and decision-making as well as to conduct a preliminary investigation of how ROA is known and perceived by senior real estate investment executives. The research is carried out as an exploratory study where the data for the research is gathered via semi-structured interviews with senior executives in real estate investment companies. All of the interviewees expressed that they would welcome ROA into their investment decision process and into the industry as a general method. The results indicate that the findings from earlier often theoretical ROA research do have practical interest, which hopefully encourages researchers to study the topic further together with practitioners. The perceived complexity of real options valuation could be overcome by communicating the benefits of ROA with results where the option values are transparent approximations. The interviews focusing on the role of ROA in investment decision making process with real estate investment executives are the first of its kind and provide new understanding regarding both the overall potential of ROA for real estate investments as well as where the next research questions should focus, especially concerning the practical viability of the method.
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Keywords
real options, real estate investment, decision-making, investment analysis
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