Tools for analysis: design for real estate and infrastructure development

This MIT OpenCourseWare site is based on the materials from Professor de Neufville's and Professor Geltner's Web site.

Lectures: 2 sessions / week for 7 weeks, 1.5 hours / session

Recitations: 1 session / week, 1 hour / session

The course builds upon the reality that "the forecast is always wrong", that is, that the future cannot be known accurately. This fact is especially true for real estate and infrastructure projects, whose up-front costs are huge and whose benefits extend far into the future. The fundamental question, for both designers and developers, is: "How do we most effectively manage our inability to forecast the future accurately?"

We argue that it is best to deal with project uncertainty proactively, by deliberately building flexibility into the project, which enables the owners or operators to take advantage of new opportunities while protecting the project from bad outcomes. From the perspective of finance, this consists of creating "real options" that provide "calls" on favorable developments and "puts" on failures. From the perspective of design, the flexibility consists of features that, like options, enable the project owners to reconfigure the project in useful ways – to expand it, to change its function, to alter its operating characteristics.

The course is intended for all those with a serious interest in the design, development and management of real estate or infrastructure projects. In addition to real estate professionals, the instructors expect to serve architects and urban planners, business managers, civil and other engineers concerned with construction.

The course will cover all the mathematics and technical aspects required. It assumes that participants are familiar with and comfortable with:

Background in real estate is a plus, but is not essential to benefiting from the course.

The course intends to develop the understanding and skills useful in developing flexible designs. Specifically, it presents methods for valuing this flexibility, so that developers and others can determine what level and kinds of flexibility are desirable in specific circumstances. These include:

The class can also provide the basis for a thesis or similar project. The research and analysis done for the class project may provide students, individually or in teams, with the basis for a thesis topic. The instructors are certainly open to discussions along these lines and will assist students trying to develop thesis proposals.

We base the course on:

Students will work on actual projects of their choosing, subject to approval by the instructors.

They will develop an in-depth understanding of their case by applying the course concepts and techniques to it. This engagement will give them a basis for appreciating the relative merits and applicability of the concepts and techniques presented in class.

To make the best use of the limited time available to us, the instructors have organized the class in advance of the first meeting:

The instructors will grade based on both individual participation and the group write-up and presentation.

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