The Impact of Aligning the Strategies of CREM with Those of a Corporate Business Using Real Options

Abstract

The article investigates the benefits of incorporating corporate real estate management (CREM) in the main business units of the company. Prior studies have illustrated that CREM unit in major companies is treated as a separately entity with less focus on its contribution to maximization of shareholders’ wealth. This article uses real option approach, specifically Samuelson-McKean (1965) model to extrapolate the value of CREM of listed South African insurance company. The results show that when CREM is insourced and treated as a significant part of the main insurance, shareholders’ wealth is maximised-value of the company increases, total costs are managed and financial parameters increase investment value-volatility can be as high as 100%. Although, the data is on financial services, the results can be replicated in other industries given that the analysed company has exposure to a number of industries.