Working Paper Series, Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin), Royal Institute of Technology
“Green” refurbishments under uncertainty
() and Han-Suck Song
Abstract: It is often argued that great energy savings can be
accomplished by upgrading existing energy-inefficient building stock.
However, even if these investments are profitable at the time, it might be
even better to postpone these measures as even better investments can be
realized later on. Such behavior can be analyzed by applying the real
options analysis (ROA) framework. In addition, the retrofit scenario
differs from the new development case, as the former is affected by the
value of the already existing building, since this value must be
“surrendered” in order to acquire revenues from the retrofitted building.
The main purpose of this paper is to evaluate green refurbishments using
the real options methodology. In doing so, we are able to accurately
estimate the “embedded” real option values of deferring green
refurbishments, thereby adding to current explanations of the
energy-efficiency gap. This paper also discusses policy suggestions to
reduce the value of waiting and thus trigger these refurbishments today.
Keywords: Refurbishment; Real options; Green building; Timing option; Real estate; (follow links to similar papers)
JEL-Codes: M21; (follow links to similar papers)
17 pages, February 1, 2016
Before downloading any of the electronic versions below
you should read our statement on
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
Questions (including download problems) about the papers in this series should be directed to Herman Donner ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Design by Joachim Ekebom