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A Real Option Analysis of the “Flats for Land” System - an Idiosyncratic Equity Financing Mechanism on Real Estate Investments

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  • Panagiotis Petris

    (National and Kapodistrian University of Athens)

Abstract

A typical real estate development project encounters an entrée capital expense for land purchase that is not immediately recovered until the allocated capital for the land acquisition is replaced with new capital that converts the land to a rentable building space. This article presents an idiosyncratic equity financing scheme that eliminates the sunk cost for a land purchase over a real estate development, within a real options framework. The study provides a model solution, numerical results of the option value, and the optimal investment threshold of a real estate development that is initiated through the “flats for land” scheme.

Suggested Citation

  • Panagiotis Petris, 2023. "A Real Option Analysis of the “Flats for Land” System - an Idiosyncratic Equity Financing Mechanism on Real Estate Investments," International Real Estate Review, Global Social Science Institute, vol. 26(4), pages 551-568.
    • Handle: RePEc:ire:issued:v:26:n:04:2023:p:551-568
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    References listed on IDEAS

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