A real options analysis of Olympic Village development : how design flexibility adds value

摘要

This thesis applies past research on real options - a right, but not an obligation to take some action on a real asset in the future - to a very specific type of real estate development related to Olympic Village development. The Olympics have been previously criticized for the excessive cost of preparation for the 16 or 17 day event. Chicago, if selected to host the 2016 Summer Games, could be faced with many of the same challenges of past cities. The purpose of this thesis is not to provide the final answer to whether a developer should implement design flexibility into a project like the Chicago Olympic Village, but rather provide a tool for which to analyze the project and areas of uncertainty. Real Options Analysis (ROA) is presented as a set of specific steps that correlate with more commonly used methods of real estate valuation. In order to determine the optimal sources for flexibility, qualitative research identifies challenges and uncertainties of Olympic Village development. This data is reviewed, analyzed and used to illustrate potential sources of flexibility for further analysis. ROA introduces the use of Monte Carlo simulation to better forecast the range of expected outputs and then integrates flexibility at various decision points of the project. The results of this model should allow decision makers for a project to choose the most desired path based on the goals and requirements of the project. It is observed, based on the assumptions used for this analysis, that flexibility "in" and "on" the project does create additional value, however this additional value is partially offset by the cost of the flexibility, if applicable.