Simulation-Based Excess Return Model for Real Estate Development : A Practical Monte Carlo Simulation-Based Method for Quantitative Risk Management and Project Valuation for Real Estate Development Projects Illustrated with a High-Rise Office Development Case Study

The Simulation-Based Excess Return Model (SERM) offers a simple, practical decision-making method for underwriting real estate development projects. It addresses the shortcomings of discounted cash flow modeling by taking into account the probabilistic distribution of outcomes and is based on realistic model of interaction of determining variables.The Simulation-Based Excess Return Model addresses the limitations of the prevailing methodologies by:1. Employing a stochastic risk assessment method for the discovery of the range of outcomes2. Explicitly addressing the interdependence of input variables3. Offering a non-relative and objective risk premium metric for guidance in decision-makingA case study is presented for development of a high-rise office project to illustrate the concepts behind the SERM methodology