The Theory and Evidence on Real Estate Financial Decisions: A Review of the Issues

Jaffe, Austin J.; Sirmans, C. F.

doi:10.1111/1540-6229.00328

Cited by 22 publications

(8 citation statements)

References 35 publications

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“…This result is consistent with the views of Jaffe and Sirmans (1984) and Miles and McCue (1984) that specialized managerial expertise increases value, and it provides evidence that JVs of this sort are an effective way to capture these managerial synergies.…”

Section: Abnormal Returnssupporting

confidence: 87%

Domestic and International Equity REIT Joint Ventures: Structuring Corporate Options

Campbell

White-Huckins

Sirmans

2006

J Real Estate Finan Econ

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We examine a sample of 185 Joint Ventures parented by publicly-traded Equity Real Estate Investment Trusts 1994–2001. These transactions are found to be motivated by a wide variety of corporate strategies. Shareholder returns for REIT parents are significantly positive, which is consistent with wealth effects previously reported for joint ventures formed by non-REIT real estate firms. In a subsample of joint ventures formed to structure partial dispositions of property, however, abnormal returns are significantly negative, which is consistent with the free cash flow theory of Jensen. REIT joint venture experience in Asia has been neutral for value, but may improve in the future if early ventures have created options for more efficient partnerships later. Copyright Springer Science + Business Media, Inc. 2006Real Estate, Joint Ventures, Internationa investment, REITS, Real options, Property diversification,

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Section: Abnormal Returnssupporting

confidence: 87%

Domestic and International Equity REIT Joint Ventures: Structuring Corporate Options

Campbell

White-Huckins

Sirmans

2006

J Real Estate Finan Econ

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“…A presentation of the numerical methods in the context of real estate is reported to the book of Jaffe and Sirmans (1994, chapter 13).…”

Section: Notesmentioning

confidence: 99%

Combining Monte Carlo simulations and options to manage the risk of real estate portfolios

Amédée‐Manesme

Barthélémy

Baroni

et al. 2013

Journal of Property Investment &Amp; Finance

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This paper aims to show that the accuracy of real estate portfolio valuations can be improved through the simultaneous use of Monte Carlo simulations and options theory. Our method considers the options embedded in Continental European lease contracts drawn up with tenants who may move before the end of the contract. We combine Monte Carlo simulations for both market prices and rental values with an optional model that takes into account a rational tenant's behavior. We analyze to what extent the options exercised by the tenant significantly affect the owner's income. Our main findings are that simulated cash flows which take account of such options are more reliable that those usually computed by the traditional method of discounted cash flow. Moreover, this approach provides interesting metrics, such as the distribution of cash flows. The originality of this research lies in the possibility of taking the structure of the lease into account. In practice this model could be used by professionals to improve the relevance of their valuations: the output as a distribution of outcomes should be of interest to investors. However, some limitations are inherent to our model: these include the assumption of the rationality of tenant's decisions, and the difficulty of calibrating the model, given the lack of data. After a brief literature review of simulation methods used for real estate valuation, the paper describes the suggested simulation model, its main assumptions, and the incorporation of tenant's decisions regarding break options influencing the cash flows. Finally, using an empirical example, we analyze the sensitivity of the model to various parameters, test its robustness and note some limitations.

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“…The analytical framework adopted in this paper builds on the insights generated and progress made in the behavioural real estate investment literature. This literature highlights complexity of investment behaviour and the picture presented is of an elongated and iterative process that involves several identifiable stages, each of which presents peculiar analytical and informational challenges (Jaffe and Sirmans, 1984;Adair et al, 1994;Roberts, 2005). Hargitay and Yu (1993), for example, suggest that the decision-making process consists of five steps: defining objectives, searching for investment projects, evaluation and comparison of competing projects, identifying a course of action, and on-going evaluation of performance.…”

Section: Research Design and Analytical Frameworkmentioning

confidence: 99%

Planning Policy and Retail Property Investment in the UK

Catherine¹,

Watkins²

2011

Urban Studies

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Empirical evidence suggests that planning policies significantly impact on investment property market performance in the UK. It is less clear, however, how information about the planning policy environment feeds into investment decision-making. This paper seeks to explore this issue. It reports on interviews with the property investment community and focuses on the decision to invest in the retail sector. The paper uses a six-stage model of the investment decision-making process as a framework for analysing the way in which concerns about policy impact on behaviour. The results suggest that an understanding of the policy environment and the development of a relationship with local planning authorities are most important in the post-acquisition asset management stage of the investment process. The research also reveals variations in access to policy intelligence and that approaches to analysis of the likely effects of planning regimes vary with fund type and strategy.

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The Theory and Evidence on Real Estate Financial Decisions: A Review of the Issues

Cited by 22 publications

References 35 publications

Domestic and International Equity REIT Joint Ventures: Structuring Corporate Options

Domestic and International Equity REIT Joint Ventures: Structuring Corporate Options

Combining Monte Carlo simulations and options to manage the risk of real estate portfolios

Planning Policy and Retail Property Investment in the UK

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