As they say when your plane touches down, “we hope you have had a pleasant journey,” in this case, through this book. You probably had to “fasten your seatbelts” in a few places. But if you have gotten to this point, and we have helped you to think hard about some important questions, then we would like to think we have piloted you through a worthwhile journey. Let’s very briefly review and summarize here our (and, we hope, your) journey.

First, most basically, and importantly, we have tried to show how important it is to explicitly consider not only uncertainty but also flexibility in the analysis and evaluation of real estate investments, particularly development projects. At the basic level, this point was a big part of the first part of this book. There, we first reviewed the classical DCF valuation model. We showed its fundamental economic basis and characteristics. As good, well‐founded, and widely accepted as this classical model is, we hope we convinced you that it leaves out vitally important considerations, unless you enhance it with the type of explicit consideration of uncertainty and flexibility that we have presented in this book.

We pointed out in Chapters 9 and 10 how the explicit consideration of uncertainty and flexibility can be important when analyzing investments in existing, stabilized income‐producing property (investment real estate). The particular example we used was the value of the ability to flexibly time the resale disposition of the property asset. But there are, no doubt, other applications relevant for investments in stabilized properties, perhaps in considering decisions about long‐term leases or capital improvements, or certainly the right (without obligation) to renovate or redevelop the property (the redevelopment call option). Existing properties may also have expansion possibilities, if they have unused land or density rights.

But the bulk of this book has been devoted to considering uncertainty and flexibility in real estate development projects. This makes sense because such projects present much more scope and opportunity for different types of flexibilities. Indeed, one of the major contributions of this book has been to systematize the study of such flexibility. We offered a structured typology of real estate development flexibility in Chapters 12–15.

As always in this book, we maintain our basic investment perspective as we study real estate development projects, rooted in fundamental economic and financial principles of opportunity cost. But real estate development projects are, in some sense, “more important” than routine real estate investment in existing physical assets. Development projects are “capital formation,” the creation of new physical assets. As such, they have a bigger economic, social, and environmental impact than investment in existing structures. This raises the importance of good, complete economic analysis and evaluation. And such good analytical practice requires the explicit consideration of uncertainty and flexibility. Uncertainty is a fact of reality. And flexibility is a fact of reality in development projects. It is impossible to do a complete, rigorous economic analysis and evaluation of development project investments without explicitly considering both uncertainty and flexibility. This book has demonstrated how to do that in a practical and transparent manner.

Throughout this book, we have attempted to present things one step at a time. We hope that, even if you came into this book with relatively little technical background, you have been able to follow it all the way through, at least for its “big picture” decision analysis–relevant implications. We have presented common‐sense methods rooted in the spirit of engineering, rather than highly complex models typical of academic literature in the field of economics. We do not claim complete, formal rigor from an academic economic perspective, as this is not our purpose. But we believe that our approach is well rooted in fundamental economic principles, and is consistent with those principles. We gladly sacrifice formal and complete economic rigor in favor of a transparent, common‐sense approach that covers the key realistic aspects of uncertainty and flexibility.

We have taken some care to describe the meaning of the quantitative value findings that we present. We have characterized these evaluations as essentially of a private nature of interest to a given decision‐maker, not necessarily market or exchange values. But we have applied fundamental economic principles of opportunity cost in deriving our investment value results. Private valuations fundamentally underlie market valuations and the transaction prices that one observes empirically in real estate markets that reflect equilibrium in those markets. Particularly in the case of development projects, which tend to be rare, unique, and therefore difficult to evaluate from a market value perspective, private valuations (“investment values”) are of great relevance.

An important part of this book is our presentation of some of the technical “nuts and bolts” of our approach. We have tried to give you enough of a feeling for how we can analyze uncertainty and flexibility in practical ways, using common computer spreadsheet software, so that you can have some sense and confidence about the technical implementation. More details on some of the key technical considerations are presented in the Appendix at the end of the book. Complete technical documentation is provided by the actual computer spreadsheet models (in Microsoft Excel^®). These are available in the book’s Companion Website. You can use these spreadsheet models, downloadable for purchasers of this book, as starting points or templates to develop your own models, customized for projects you are interested in, and no doubt improved from our humble offerings. (We seek to inspire you, and help you to get started; we don’t claim to present a definitive or superior product.)

From the technical perspective, we have made some practical suggestions. We emphasized the importance of keeping the models simple, so as not to lose sight of the forest through the trees. Don’t be afraid to abstract from the complete, real‐world details of the project. A stylized analysis will usually be more powerful for eliciting the important key insights. Admittedly, there is not a little bit of “art” in this process. Hopefully, the examples we have provided, based on our Garden City project illustration, give some sense and guidance for such craft. And, of course, we need to emphasize the importance of humility. No model, no quantitative analysis, will ever be completely definitive or foolproof. You will never want to let a technical model overrule your common sense and good judgment!

Another principle we have employed throughout the book is to build on existing best practice. We don’t want you to reinvent the wheel, or build analyses from scratch, if there is already good practical knowledge out there. This is the principle underlying our practice of using pricing factors combined with existing, best‐practice cash flow pro forma projections, for the subject projects or investments. The principal parties in the field already know more than anyone else, probably, about the specific real estate assets that are the subject of analysis and evaluation.

Finally, we have walked you through an extensive study of the value of various types of flexibilities specifically quantified for a concrete example—our illustrative, archetypical Garden City project. We cannot claim that the results that we have obtained and reported in Chapters 17–23 are general or definitive. They apply, strictly speaking, only to the Garden City project under the pricing dynamics assumptions that we have employed. But the project is typical of many medium to large‐scale, multi‐asset development projects. And the price dynamics that we assume are reflective of current empirical evidence and theoretical knowledge about how real estate asset markets operate, at least in advanced market economies such as the United States and other developed countries.

What do we find? Not surprisingly, we find that there is a lot of risk in real estate development—but also that flexibility can add a lot of value to development projects. Much production timing flexibility in development tends to be, in practice, delay options. These act like “put” options, providing protection against the worst of the possible downside outcomes, much like insurance. This can add value that is a significant fraction of the land value, and that considerably improves the risk/return performance of real estate development investment. Other options provide more upside benefit, such as product type switching options. We often find that individual types of flexibilities by themselves seem to add 10–20% to the net value of the development project (present value of benefit minus construction cost). Therefore, they add that percentage to the value of the land.

But our simulation approach allows the valuation of combinations of several different types of options simultaneously. While there is considerable redundancy among production timing options (the delay options that protect downside outcomes), product options and timing options are more additive and synergistic. Combinations of options may well add up to over one‐third of the land value (recall Section 21.4.).

These quantitative results are based on the simple, behavior analog decision rules that we have programed into our simulation analyses in Microsoft Excel^®. For example, we use the Simple Myopic Delay Rule, which bases the option exercise decision only on the relative profitability of the project in the current period as compared to the base case projection in the original pro forma for the project. These decision rules are explicitly not optimal or optimized in any formal or rigorous manner. They are practical and transparent, but are simplified representations of how developers might actually make decisions about the exercise of flexibility. It is quite possible that, in reality, developers—at least some developers—could do better than our models in exercising the available options. In that case, our estimates of the value of flexibility may be on the low side.

So, we hope you will now take your newfound knowledge and perspective from this book and go forth and have fun applying it to your own real estate investments and development projects. “Live long, and prosper!”