Effect of seismic risk on lifetime property value

Effect of seismic risk on lifetime property value

We examine seismic risk from the commercial real estate investor's viewpoint. We present a methodology to estimate the uncertain net asset value (NAV) of an investment opportunity considering market risk and seismic risk. For seismic risk, we employ a performance-based earthquake engineering me...

Full description

Saved in:
Bibliographic Details
Published in:Earthquake spectra Vol. 20; no. 4; pp. 1211 - 1237
Main Authors: Porter, Keith A, Beck, James L, Shaikhutdinov, Rustem V, Au, Siu Kui, Mizukoshi, Kaoru, Miyamura, Masamitsu, Ishida, Hiroshi, Moroi, Takafumi, Tsukada, Yasu, Masuda, Manabu
Format: Journal Article
Language:English
Published: Oakland, CA Earthquake Engineering Research Institute 01-11-2004
Subjects:
Asia
buildings
California
cost
decision-making
Earth sciences
Earth, ocean, space
earthquakes
Earthquakes, seismology
Engineering and environment geology. Geothermics
engineering geology
Exact sciences and technology
Far East
Honshu
Internal geophysics
Japan
Los Angeles County California
markets
Natural hazards: prediction, damages, etc
probability
risk assessment
seismic risk
Seismology
statistical analysis
Tokyo Japan
uncertainty
United States
United States
markets
cost
buildings
investment
earthquake engineering
earthquakes
North America
seismic risk
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We examine seismic risk from the commercial real estate investor's viewpoint. We present a methodology to estimate the uncertain net asset value (NAV) of an investment opportunity considering market risk and seismic risk. For seismic risk, we employ a performance-based earthquake engineering methodology called assembly-based vulnerability (ABV). For market risk, we use evidence of volatility of return on investment in the United States. We find that uncertainty in NAV can be significant compared with investors' risk tolerance, making it appropriate to adopt a decision-analysis approach to the investment decision, in which one optimizes certainty equivalent, CE, as opposed to NAV. Uncertainty in market value appears greatly to exceed uncertainty in earthquake repair costs. Consequently, CE is sensitive to the mean value of earthquake repair costs but not to its variance. Thus, to a real estate investor, seismic risk matters only in the mean, at least for the demonstration buildings examined here.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:8755-2930
1944-8201
DOI:10.1193/1.1810536