SBIR Phase I: Environmental Risk Management and Quantification Using Real Options

This Small Business Innovative Research Phase I project is proposed for developing a methodology and tools for assessing the redevelopment value of environmentally impaired properties. The purpose of this research is to develop a methodology and software to quantify the risk and cost associated with redeveloping such properties. The proposed project involves: (i) identifying and evaluating data for calibrating a valuation model; (ii) developing a valuation model that accurately accounts for uncertainty and the value of management flexibility than other available models); (iii) identifying commercially available products that can support the model; and (iv) developing a working prototype of the model, using the data collected in the first task to check the viability of the prototype. The application of these methodologies represents a unique aspect of this research; this approach reflects the state-of-the-art in research of property valuation, and the proposed project is expected to advance the state-of-the-art in this field. The project offers numerous commercial and societal benefits related to redevelopment of environmentally impaired properties. There are tens of thousands of environmentally impaired properties in the United States, many of which are located near business centers and in areas targeted for redevelopment. Developers can purchase insurance products to mitigate some of this risk, but the costs of currently available insurance products are not based on an accurate evaluation of the true risk. Using the product of this research, developers will be able to more accurately quantify the value of their investment in an environmentally impaired property, will be able to more competitively obtain insurance against unforeseen circumstances, develop better contingency plans in the event that unexpected conditions are encountered, and will be able to identify key management decision points in a proposed redevelopment project. The product of this research will also provide, in some cases, a competitive advantage to redevelopment of environmentally impaired properties over development of undeveloped land.