Combining Monte-Carlo Simulations and Options to manage Risk of Real Estate Portfolios
REAL OPTIONS PLANNING IN REAL ESTATE DEVELOPMENT
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REAL OPTIONS PLANNING IN REAL ESTATE DEVELOPMENT
24/06/10ERES 2010
Dietmar Wiegand, Univ.Prof. Dipl.-Ing. Architect AKH SRLHead of Divivsion Real Estate Development and Management Vienna University of Technology (TU Wien)[email protected]
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Seite 2Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
new OPEC building in Vienna
One user/tenant!Adaptability to changing user requirements? Future uses?
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Agenda
(1) Real Options – a new way of thinking
(2) Cases – simulating and designing Real Options using Discrete Event Simulations (DEVS)
(3) MoreSpace Initiative – reducing carbon emission using real options in operation
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Seite 4Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
(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
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Seite 5Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
accept uncertainties – design options to behave (real options)
A B
state-of-the-art: risk > IRR 6%, 10%, 14%
A B
stop
A B
stop + relax + eat
A B
evade
t1
steering wheel
break
break + intell. driver
1)
2)
3)
4)
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Seite 6Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
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)
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Seite 7Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
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 behaviourSituation in Real Estate? DCF, VoFi etc. are static assessments, they don´t
know any system behaviour over time in case of events!
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Seite 8Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
(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 needs1) Floor plan ?2) Spatial Management ?3) 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
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Seite 9Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
FM: Option to behave / flexibility of rooms
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Seite 10Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
FM: Option to behave / flexibility of installations
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Seite 11Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Development of room mix
Development of room mix over 40 years
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Seite 12Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Development of room mix with a certain FM behaviour
Management: min. 2 room apartments for new tenants
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Seite 13Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Types of dynamic simulations e.g. discrete event simulation (DEVS)
Y
t
Y
t
Y
t
Y
t
diskrete ereignisorientierte Simulation
stetige Simulation mit diskreten Zeitintervallen
stetige Simulation
kombinierte Simulation
Discrete event simulations (DEVS)Z
imm
eran
zahl
Zeit
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Seite 14Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Targets of DEVS
System-InputS
yste
m
Funktionsnachweis Leistungsgrenzen
bek
ann
tu
nb
ekan
nt
Systemalternativenallg. Aussagen über
Systemtypen
bekannt unbekannt
Targets of DEVS application
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Seite 15Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
How to work with discrete event simulations
SimulationsmodellReales System
Formale Ergebnisse
Folgerung für das reale System
Modellierung Abstraktion
Übertragung Interpretation
Experimente
How to work with DEVS
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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
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Seite 17Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
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
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Seite 18Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
DFD Simulation
Building LC Letting / booking status
Use / occupancy
Profitability Analysis
Market of tenants +
guests
Marketing / Branding
DFD application: Area and Hospitality Deveopment
Excel
Special Calculations
Rules• Behavior of Mgmt.• Behavior of Building• Behavior of Market
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Seite 19Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Complexity of search space
Z
1
23
34
456
7
AZ
X
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Seite 20Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
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)
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Seite 21Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Case: School building
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Seite 22Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Results
Floor plan / spatial management: Classrooms and specialized roomsNumber and size according to rules Average use of classrooms: 25 % 7am – 7pm
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Seite 23Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Results
Floor plan / spatial management: Classrooms and minimized number of specialized rooms
40% savings qm / space for other use
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Seite 24Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
• P
ub
lic
infr
astr
uct
ure
O
blig
atio
n (n
atio
nal e
duca
tion)
• B
uil
din
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roje
ct:
loca
tion,
are
a pr
ogra
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e (m
2 gr
oss
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atio
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• C
on
stru
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pro
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• O
per
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• S
ale/
dem
oli
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Public buildings - portfoliomanagement
MoreSpacemore efficient use of tax income;objective e.g. national education with less public investment / less C02 etc.
MoreSpace – intense use saves CO2 Emission
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Seite 25Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
League of Towns and
Municipalities
MoreSpace TransferPoints
MoreSpace Innovation
Groups
Town
Municipility
TeamWeb 2.0
Chambers
Interest Groups
Enterprises
Municipality
TownIEE
funding
externalfunding
presentfunding
UniversitiesNN
MoreSpace – structure of initiative
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Seite 26Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Initiative MoreSpace
• Gathering of information & exchange• Best practice
- e.g. area/space management of buildings for educational purposes
EUwide
• MoreSpace Congress (less energy - less money)
Official start of the initiative
• Projects/ fundraising etc…
Dis
ser
tati
on
/ R
&D
/ M
aste
r T
hes
is
Portfolio & operations of buildings• Analysis & evaluation
- use/ occupancy of buildungs for educational purposes- C02 per teaching unit- problems with intensified use/occupancy
Par
tner
sea
rch
/ ea
rly
ap
pli
ers
Round tablemeetings
Round tablemeeting
MoreSpace – schedule
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Seite 27Univ.Prof. Dipl.-Ing. Arch. Dietmar Wiegand – 20.04.23
Join MoreSpaceUniv.Prof. Dipl.-Ing Dietmar Wiegand