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REAL OPTIONS PLANNING IN REAL ESTATE DEVELOPMENT

REAL OPTIONS PLANNING IN REAL ESTATE DEVELOPMENT. 24/06/10 ERES 2010 Dietmar Wiegand, Univ.Prof. Dipl.-Ing. Architect AKH SRL Head of Divivsion Real Estate Development and Management Vienna University of Technology ( TU Wien) wiegand@tuwien.ac.at. new OPEC building in Vienna.

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REAL OPTIONS PLANNING IN REAL ESTATE DEVELOPMENT

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  1. REAL OPTIONS PLANNING IN REAL ESTATE DEVELOPMENT 24/06/10 ERES 2010 Dietmar Wiegand, Univ.Prof. Dipl.-Ing. Architect AKH SRL Head of Divivsion Real Estate Development and Management Vienna University of Technology (TU Wien) wiegand@tuwien.ac.at

  2. new OPEC building in Vienna One user/tenant! Adaptability to changing user requirements? Future uses?

  3. Agenda Real Options – a new way of thinking Cases – simulating and designing Real Options using Discrete Event Simulations (DEVS) MoreSpace Initiative – reducing carbon emission using real options in operation

  4. (1) Real Options – a new way of thinking • Real options, the right but not the obligation to conduct an action, still plays a minor role in the practice of real estate development and investment. Taking into account the numerous options to behave, that exist during the lifecycle of real estate especially for real estate and portfolio managers means: • - accept the existence of uncertainties, - design and prepare possible future behaviours- appraise option prices- design and prepare monitoring systems

  5. accept uncertainties – design options to behave (real options) state-of-the-art: risk > IRR 6%, 10%, 14% 1) A B t1 evade steering wheel 2) A B stop break 3) A B stop + relax + eat break + intell. driver 4) A B

  6. analysis, valuation, change of option to behave Example 1: Appraisal of risks without regarding options to behave: • Wrong risk assessment • wrong investment decisions Example 2-4: • Appraisal of risks incl. regarding options to behave: • Importance of the vehicle and the possible options to behave (embedded real options) • Importance of the driver and his possible and real behaviour in case of events (embedded real options)

  7. analysis, valuation, change of option to behave Measures: • Design real options / optimize system behaviour: • buy a car with steering wheel and break • Planning and execution of regular checks and maintenance of car • Planning and execution of regular checks and training of driver • Improved risk assessment • Investment decisions based on improved understanding aof system behaviour Situation in Real Estate? • DCF, VoFi etc. are static assessments, they don´t know any system behaviour over time in case of events!

  8. (2) Simulating and designing Real Options using DEVS Hostel for elderly people in Zürich • People move in healthy – 2-4 rooms • No moves, whatever happens • Shrinking apartments – according to needs • Floor plan ? • Spatial Management ? • Business Model ? • Statistic data, duaration of stay etc. ! • 1) 2) 3) have to be based on a consideration of events: • Probability known, • moment of entry unknown

  9. FM: Option to behave / flexibility of rooms

  10. FM: Option to behave / flexibility of installations

  11. Development of room mix Development of room mix over 40 years

  12. Development of room mix with a certain FM behaviour Management: min. 2 room apartments for new tenants

  13. Discrete event simulations (DEVS) Y Y t t diskrete ereignisorientierte Simulation stetige Simulation Y Y t t stetige Simulation mit diskreten Zeitintervallen kombinierte Simulation Types of dynamic simulations e.g. discrete event simulation (DEVS) Zimmeranzahl Zeit

  14. Targets of DEVS application Targets of DEVS

  15. How to work with DEVS How to work with discrete event simulations

  16. Results buildings and its management represent: • a dynamic “system” with • a “behaviour” • we are able to design and develop: We have to design and consider the fitness of buildings and management behaviour: • events: • Probability known or assumed, • moment of entry unknown

  17. Area and Hospitality Development Hotel Investment at a certain location • Type of hotel • Number and mix of rooms • Hospitality concept / business model • Development in steps • Alternating use of parts

  18. DFD application: Area and Hospitality Deveopment DFD Simulation Use / occupancy Letting / booking status Market of tenants + guests Building LC Marketing / Branding Profitability Analysis • Rules • Behavior of Mgmt. • Behavior of Building • Behavior of Market Special Calculations Excel

  19. Complexity of search space Z X 6 3 4 7 5 4 2 3 1 A Z

  20. Real Options and DEVS Discrete event simulations: • Transparancy in Real Estate Development for different partners / stakeholders • Enhanced principal agent relationships • Improved building design for the lifecycle • Improved Facility Management concepts • Improved economical and ecological efficiency DES will become a standard method within 5 – 10 years in Facilities and Hospitality Developments DES need data (RFID)

  21. Case: School building

  22. Results Floor plan / spatial management: Classrooms and specialized rooms Number and size according to rules Average use of classrooms: 25 % 7am – 7pm

  23. Results Floor plan / spatial management: Classrooms and minimized number of specialized rooms 40% savings qm / space for other use

  24. Buildingproject: location, areaprogramme (m2 grossfloorarea/ operation) • Public infrastructure • Obligation (national education) • Construction /production • Operation • Sale/ demolition MoreSpace more efficient use of tax income; objective e.g. national education with less public investment / less C02 etc. Public buildings - portfoliomanagement MoreSpace – intense use saves CO2 Emission

  25. MoreSpace – structure of initiative externalfunding Municipality MoreSpace Innovation Groups Team Web 2.0 NN Universities League of Towns and Municipalities MoreSpace Transfer Points Town Enterprises presentfunding IEE funding Town Interest Groups Chambers Municipility

  26. MoreSpace – schedule EUwide Initiative MoreSpace • Gatheringofinformation & exchange • Best practice • - e.g. area/spacemanagementofbuildingsforeducationalpurposes Round tablemeeting • Portfolio & operationsofbuildings • Analysis & evaluation • use/ occupancyofbuildungsforeducationalpurposes • C02 per teachingunit • - problemswithintensifieduse/occupancy Dissertation / R&D/ Master Thesis Partner search/ earlyappliers Round tablemeetings • MoreSpaceCongress (lessenergy - lessmoney) • Official startofthe initiative • Projects/ fundraisingetc…

  27. Join MoreSpace Univ.Prof. Dipl.-Ing Dietmar Wiegandwiegand@tuwien.ac.at

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