Financial Planning for Real Estate Production Decisions

Abstract

Recently, the production and service components of the real estate business have evolved from collections of mom and pop operations to full-fledged industries comprised of highly competitive, small and medium-sized firms. This evolution to larger-scale business operations has important implications for the type of financial analysis to be conducted by real estate firms in the future. Specifically, the traditional project-specific financial analysis of real estate investment opportunities will be subsumed by strategic financial planning for real estate decisions at the firm level. Even with a radical change in emphasis and interpretation, the discounted cash flow tradition, firmly established in project-specific analysis, is likely to remain since it underlies most strategic financial planning models. This article details how such a model can be used by firms to make real estate production decisions.