Valuation of brownfields recovery through the Real Options Theory

The recovery of brownfield sites has been in the past, and still is today, at the centre of urban policies which have established and, in some cases, completed key urban transformation projects. Investment decisions in relation to the redevelopment of brownfields are affected, primarily, by two critical variables: the remediation costs and the value of the area after the environmental recovery has been completed. In the past and in many countries, the use of public resources was the preferred means of encouraging the development of urban transformation projects of contaminated lands. On the contrary, the current economic scenario requires a new insight: this note attempts, therefore, to argue and support financial and economic feasibility of the recovery of brownfields through the Real Options Theory (ROT). Then, the case-study focuses on a contaminated area in Turin showing how, by changing the remediation costs, the application of the Black & Scholes formula compares and makes evident the points of view of the landowner, the real estate developer and the public sector.