A Real-Options-Aware Multi-Criteria Framework for Ex-Ante Real Estate Redevelopment Use Selection

TL;DR

This paper introduces a decision framework combining real-options logic and multi-criteria decision analysis to improve ex-ante real estate redevelopment use selection, considering value, risk, complexity, and irreversibility.

Contribution

It presents a novel integrated framework that operationalizes real options in strategic real estate use decisions, addressing misalignment issues in redevelopment projects.

Findings

Framework effectively evaluates economic value and risks.

Reduces over-complexification in redevelopment decisions.

Demonstrates applicability across various asset types and contexts.

Abstract

A growing share of the existing real estate stock exhibits persistent underperformance that can no longer be explained by cyclical market phases or inadequate maintenance alone. In many cases, technically recoverable assets located in non-marginal contexts fail to generate economic value consistent with the capital immobilized. This condition reflects a structural misalignment between intended use and effective demand rather than episodic market weakness, and calls for a decision framework capable of integrating value, risk, complexity, and irreversibility in strategic use selection. This study proposes a decision-analytic framework for the ex-ante selection of intended use in real estate redevelopment processes. The framework integrates real-options logic on irreversibility and managerial flexibility with a multi-criteria decision-analysis structure, enabling comparative evaluation of expected economic value, market and operational risk, technical and managerial complexity, and time-to-income. By treating redevelopment primarily as a problem of strategic option selection rather than design or financial optimization, the framework operationalizes option value preservation through disciplined ex-ante screening. Illustrative cases demonstrate how this integration of real options reasoning and MCDA reduces over-complexification and misalignment across different asset types and urban contexts.