Commercial Real Property Investments Under Debt Crisis Economic Conditions

Abstract

The main purpose of our paper is the incorporation of life-cycle costs (LCC) and whole-life costing (WLC) methodology into the investment appraisal procedure for commercial real property projects under the current debt crisis conditions that the Greek economic environment is facing. The paper initially presents the methodologies of LCC and WLC together with the NPV measure for the evaluation of real estate investments. These methods are incorporated into a decision-making model using mathematical approaches. The model is applied to a typical commercial property project (office building) in order to explore the significance of impacts from changes in structured variables and the taxation environment under today’s debt crisis Greek economic conditions in the evaluation of commercial real estate projects. The application of our methodology to the current Greek economic environment revealed that the tax regime, the financial variables of funding and the applied monetary and fiscal policies affecting demand and inflation are critical variables of the Net Present Value (NPV) of a commercial property project investment. An integrated WLC mathematical model for the evaluation and valuation of commercial real property projects is introduced. The herein proposed methodology contributes to taxation policy and real estate theory in general and assists industry professionals in effective commercial property management and decision-making.