REAL OPTIONS PLANNING IN REAL ESTATE DEVELOPMENT 24 06 10

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 One user/tenant! Adaptability to changing user requirements? Future uses? Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 2

Agenda (1) Real Options – a new way of thinking (2) Cases – simulating and designing Real Options using Discrete Event Simulations (DEVS) (3) More. Space Initiative – reducing carbon emission using real options in operation

(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 Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 4

accept uncertainties – design options to behave (real options) 1) state-of-the-art: risk > IRR 6%, 10%, 14% A t 1 evade 2) B steering wheel A B stop 3) break A B stop + relax + eat 4) break + intell. driver A B Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 5

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: Ø Importance of the vehicle and the possible options to behave (embedded real options) Ø Importance of the driver and his possible and real behaviour in case of events (embedded real options) Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 6

analysis, valuation, change of option to behave Measures: Ø Design real options / optimize system behaviour: Ø buy a car with steering wheel and break Ø Planning and execution of regular checks and maintenance of car Ø Planning and execution of regular checks and training of driver Ø Improved risk assessment Ø Investment decisions based on improved understanding aof system behaviour Situation in Real Estate? Ø DCF, Vo. Fi etc. are static assessments, they don´t know any system behaviour over time in case of events! Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 7

(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 1) Floor plan ? 2) Spatial Management ? 3) Business Model ? ! Statistic data, duaration of stay etc. ! Ø 1) 2) 3) have to be based on a consideration of events: Ø Probability known, Ø moment of entry unknown Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 8

FM: Option to behave / flexibility of rooms Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 9

FM: Option to behave / flexibility of installations Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 10

Development of room mix over 40 years Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 11

Development of room mix with a certain FM behaviour Management: min. 2 room apartments for new tenants Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 12

Discrete event simulations (DEVS) Zimmeranzahl Types of dynamic simulations e. g. discrete event simulation (DEVS) Y Y t diskrete ereignisorientierte Simulation Zeit t stetige Simulation Y Y t stetige Simulation mit diskreten Zeitintervallen t kombinierte Simulation Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 13

Targets of DEVS application Targets of DEVS Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 14

How to work with DEVS How to work with discrete event simulations Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 15

Results buildings and its management represent: Ø a dynamic “system” with Ø a “behaviour” Ø we are able to design and develop: We have to design and consider the fitness of buildings and management behaviour: Ø events: Ø Probability known or assumed, Ø moment of entry unknown Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 16

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 Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 17

DFD application: Area and Hospitality Deveopment Use / occupancy Letting / booking status Building LC Profitability Analysis Marketing / Branding Rules • Behavior of Mgmt. • Behavior of Building • Behavior of Market Special Calculations Excel Market of tenants + guests DFD Simulation Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 18

Complexity of search space Z 7 X 6 4 5 3 3 4 2 1 AZ Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 19

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) Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 20

Case: School building Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 21

Results Floor plan / spatial management: Classrooms and specialized rooms Number and size according to rules Average use of classrooms: 25 % 7 am – 7 pm Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 22

Results Floor plan / spatial management: Classrooms and minimized number of specialized rooms 40% savings qm / space for other use Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 23

More. Space – intense use saves CO 2 Emission More. Space more efficient use of tax income; objective e. g. national education with less public investment / less C 02 etc. Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Public buildings portfoliomanagement Seite 24

More. Space – structure of initiative external funding Municipality More. Space Innovation Groups Team Web 2. 0 NN Universities Town League of Towns and Municipalities present funding More. Space Transfer Points Town Municipility Chambers Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Enterprises Interest Groups IEE funding Seite 25

More. Space – schedule Partner search/ early appliers Dissertation / R&D/ Master Thesis Initiative More. Space EUwide • Gathering of information & exchange • Best practice - e. g. area/space management of buildings for educational purposes Round table meeting Portfolio & operations of buildings • Analysis & evaluation - use/ occupancy of buildungs for educational purposes - C 02 per teaching unit - problems with intensified use/occupancy Round table meetings • More. Space Congress (less energy - less money) Official start of the initiative Univ. Prof. Dipl. -Ing. Arch. • Projects/ fundraising etc… Dietmar Wiegand – 3/16/2018 Seite 26

Join More. Space Univ. Prof. Dipl. -Ing Dietmar Wiegand wiegand@tuwien. ac. at Univ. Prof. Dipl. -Ing. Arch. Dietmar Wiegand – 3/16/2018 Seite 27