Multi-project interactive effect on optimal development timing strategy

Abstract

Our study aims to develop a real options model to examine multi-project interactive effects on developera??s development timing strategies. The model will also evaluate how investment strategies change under different market situation and for different project type, either homogeneous or heterogeneous. We first set up a deterministic framework under the constant demand and cost functions to examine the portfolio effects of multiple projects and investment strategies under different market conditions. Then we extend to a stochastic framework with one developer who has development options on two different but contiguous land parcels, the developer will have the options to develop the two projects simultaneously or sequentially, and to develop the two land parcels into two homogeneous or heterogeneous projects. The model evaluates whether the developer will make simultaneous development or sequential development under different market situations, and how the portfolio effects will impact the optimal development timing of the second project.