Investment decision making in real estate industry with Real Options Analysis: case of RBI Holding

Abstract

The research goal of this paper is to develop the algorithm of investment project valuation with the help of real options analysis on example of company from real estate industry and to evaluate investment project of the particular company with this tool. Research questions of this Thesis are the following: 1. What kinds of decision making criteria and risk management tools in the field of investment project valuation do exist? 2. What models of real option analysis and valuation do exist? 3. What peculiarities does real estate industry have in terms of investment project valuation? 4. Which real options does a company face during investment project realization? 5. How to evaluate investment projects taking into account these real options? 6. How these real options influence the decision about undertaking of analyzed investment project? The results of the research are the following: • Real options methodology and its applicability to the real estate industry was analysed; • Step-by-step algorithm of investment project valuation in real estate industry taking into account embedded real options was built; • This algorithm was implemented in order to evaluate particular project of RBI Holding. As a result, changes in decision-making criteria were made which can give the company some space during negotiations about this piece of land purchase price.