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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Article
Probabilistic Evaluation for Commercial Real Estate Investments
Author(s)
Lin Jeng-hsiang
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DOI:10.17265/1548-6583/2014.05.005
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ABSTRACT
Throughout the decision-making process, prudent investors must address questions regarding the probabilities of future profit gain. In this study, the probability-based discounted cash flow (DCF) method with net present value (NPV) as the indicator was adopted as an analysis tool. A probabilistic framework for measuring exceeding probability of annual rate of return on a commercial real estate investment under a specified holding period was developed. Based on the framework, the relation curves of annual rate of return versus the corresponding exceeding probability of return for available financing schemes were constructed. These curves were used as a tool to prioritize the schemes and inform decision-making. An example case is presented to demonstrate the decision-making process developed in this study. Through the proposed process, investors are given basic information on the return, probability that profit gain will occur, and feasibility of financial schemes for commercial real estate investments.
KEYWORDS
commercial real estate, investment, decision-making, probability
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