Flexibility and Real Estate Valuation under Uncertainty

22Project Phasing Flexibility: We Show How to Model and Evaluate the Delay Flexibility Inherent in Project Phasing

LEARNING OBJECTIVES

• Understand the difference between modular delay and phasing delay flexibility;
• Learn how to model phasing delay flexibility in a spreadsheet;
• Explore quantitatively the value of phasing delay flexibility with a simple two‐phase example project.

OUTLINE OF THE CHAPTER

1. 22.1 Modeling the Sequential Phase Delay Option
2. 22.2 Modifying the Garden City Project Plan
3. 22.3 Project Economics
4. 22.4 The Delay Decision Model
5. 22.5 Exploring the Value of Project Phasing Flexibility
6. 22.6 Conclusion

In Chapter 20, we saw that modular production timing flexibility can add substantial value to a multi‐asset development project. But, for many real estate development projects, the modular type of production flexibility is not realistic. However, it is widely possible to divide a large, multi‐building project into two or more distinct, pre‐planned “phases.” As described in Chapter 15, phasing flexibility involves a plan to produce parts or sections of the overall project separately, with each phase being able to function independently if necessary. Indeed, the phasing of large projects is quite common. Such phasing generally brings with it considerable timing flexibility—in particular, to delay the start of subsequent phases beyond the base plan schedule represented in the original pro forma. We now explore this subject by considering a modified version ...